Eurozone storm front moves to Spain

World markets cast Spain back to the centre of the eurozone debt storm Monday, pushing its borrowing rate to a euro-era record and dashing hopes for a respite after Greek elections.

Investors fled on fears the crisis could topple the eurozone's fourth largest economy, Spain, and even number-three economy, Italy, despite the Greek vote giving pro-bailout parties a chance to govern.

Sunday's elections put Greece's conservative New Democracy party in the lead, with enough seats to form a ruling coalition committed to austerity measures set out in the nation's 130-billion-euro ($165 billion) European Union-IMF programme.

"The country does not have a minute to lose," said New Democracy party leader Antonis Samaras. Greece's socialists said they hoped for a unity government as soon as Tuesday.

The financial markets, however, gave almost no time for a pause.

After a brief rally on the receding prospects of a disorderly Greek euro exit, European equities quickly pulled back. Spanish and Italian stock markets each closed nearly three percent lower.

On the government debt market the rate of return investors demanded to hold 10-year Spanish bonds leapt to 7.144 percent -- the highest level since the birth of the euro in 1999 and a rate regarded as unsustainable over the long term -- from 6.838 percent late on Friday.

The gap with the yield on German 10-year bonds, the eurozone benchmark, widened to a record 5.89 percentage points.

Italy's bonds, too, traded above six percent.

"Despite the fact that this has been sold as a victory for Europe, in fact the situation Greece is in is no better than it was and in fact quite a lot worse than it was three months ago," said Edward Hugh, a Barcelona-based economist.

"Three months have gone by and not a lot has been done. And the reality is they want to renegotiate in some way even though they say they support it," he added.

For Spain, the market reaction was bad news, Hugh said.

"There is no bounce from the Greek election and what bounce there is is in the opposite direction," he said.

Spain faces two significant tests this week, when it issues up to three billion euros in 12- and 18-month bills on Tuesday and up to two billion euros in two-, three- and five-year bonds on Thursday.

Investors worried about the risk of a full-blown Spanish bailout, Hugh said, despite a June 9 eurozone agreement to loan Madrid up to 100 billion euros to save banks exposed to the collapsed property sector.

The exact figure to be requested will be set after an audit carried out by two international consultant groups, Oliver Wyman and Roland Berger, due by Thursday but expected imminently.

Montserrat Formoso, head of portfolio management at Spanish brokerage Tressis, said the key worry of the markets was no longer just the risk of a state bailout for Spain.

"At this time it is not Spain but the euro in general," she said.

"Now it is directly the future of the euro."

Meanwhile, the bad numbers kept rolling in for Spain.

The mountain of doubtful loans held by Spain's banks surged to a new 18-year record of 8.72 percent of total loans against 8.37 percent in March and 8.15 percent in February, the Bank of Spain said Monday.

The IMF warned Friday that Spain must implement comprehensive reforms to win back market confidence even after securing the rescue loan for its banks.

Among the hardest to digest:

-- Raising value added tax (VAT) now -- a step the ruling Popular Party had promised not to take during its election campaign;

-- Immediate legislation on future public wage cuts;

-- Separating "non-viable banks" from those that need no aid and those that are viable but need support.

It also advised delaying some of the austerity squeeze on the economy, which is in recession and suffering a 24.4 percent unemployment rate.

But Prime Minister Mariano Rajoy, in an informal briefing to Spanish media at the weekend, reportedly said he would not be following the IMF advice on VAT or public wage cuts.

Rajoy, upon his arrival in Mexico for a meeting of leaders of the world's top 20 economies centred on the unfolding crisis, said "I think what we are going to transmit is a message of confidence in the euro."

Spain's public debt rose to 72.1 percent of gross domestic product in the first quarter of 2012 from 63.6 percent in the same period a year earlier, according to latest central bank data.

The ratings agency Moody's Investors Service, which slashed Spain's rating to one notch above junk bond status last week, projected the public debt would hit 90 percent of GDP this year.


Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • Sandigan OKs hospital stay for GMA co-accused
    Sandigan OKs hospital stay for GMA co-accused

    The Sandiganbayan has allowed a government official, accused with plunder along with former President and now Pampanga Rep. Gloria Macapagal-Arroyo to undergo a medical procedure at a hospital tomorrow. The anti-graft court permitted former Philippine Charity Sweepstakes Office (PCSO) board member Benigno Aguas to undergo a cardiopulmonary/endocrine clearance at the St. Luke’s Medical Center in Quezon City. …

  • Sandigan recommends executive clemency for ex-envoy
    Sandigan recommends executive clemency for ex-envoy

    The Sandiganbayan has recommended executive clemency for a former Philippine ambassador to Nigeria who was sentenced to 52 years for malversation of public funds. The Sandiganbayan First Division found Masaranga Umpa guilty of misusing the Assistance-To-Nationals Stand-by Funds totaling $80,478.80 in 2007, but the anti-graft court said the former assemblyman from Lanao del Norte should be pardoned. …

  • Stargazing at the mall highlights Earth Hour
    Stargazing at the mall highlights Earth Hour

    It was a night of stargazing in 58 SM Supermalls all over the country last night as these establishments participated in Earth Hour, an annual worldwide movement encouraging communities and establishments to switch off lights for one hour to raise global awareness of overuse of non-renewable resources. The Philippines has been an active participant of Earth Hour since 2008. Last night, in the province of Bulacan, for instance, all parishes, diocesan institutions, schools and household …

  • Payanig privatization hit
    Payanig privatization hit

    BLEMP Commercial of the Philippines, Inc. (BLEMP) denounced the recent announcement of the Presidential Commission on Good Government (PCGG) to privatize the 18.4-hectare “Payanig sa Pasig” property. In a statement sent to The STAR, BLEMP lawyer Dennis Manalo said the PCGG has no right to auction the property because it has no valid title and is not in possession. The PCGG has not paid a single centavo in real property taxes for the property, he said. He narrated that it was in the early 70s …

  • New species of tarantula found
    New species of tarantula found

    Scientists from the Museum of Natural History (MNH) of the University of the Philippines-Los Baños have discovered a new species of cave-dwelling tarantula on an island off the coast of Quezon. The new species of the spider, Phlogiellus kwebaburdeos, was described in the recent issue of the Philippine Journal of Systematic Biology by MNH curators for spiders Aimee Lynn Dupo and Alberto Barrion along with their former student Joseph Rasalan. The tarantula was discovered by Rasalan during one …

  • Palm Sunday: Do not add to suffering of others
    Palm Sunday: Do not add to suffering of others

    As Christendom enters Holy Week today, Palm Sunday, an official of the Catholic Bishops’ Conference of the Philippines (CBCP) yesterday called on the faithful not to add to the sufferings of their fellowmen. Jerome Secillano, executive secretary of the CBCP-Episcopal Commission on Public Affairs (ECPA), said that while Palm Sunday is oftentimes remembered as the glorious arrival of Jesus Christ in Jerusalem, it also signals the start of the Holy Week that tells of His suffering, death and …

  • Miriam pushes tougher graft law
    Miriam pushes tougher graft law

    Sen. Miriam Defensor-Santiago has filed a bill that would make public officials liable for violations of the Anti-Graft and Corrupt Practices Act even if they are elected to a fresh term or a new position. In filing Senate Bill 2716, Santiago sought to address what she said was the doctrine of condonation in Philippine jurisprudence brought about by the 2010 case of Salumbides vs. Ombudsman. “By merely asserting the doctrine of condonation, erring elective officials are automatically given a …

  • Phl hits back at China over sea infra work
    Phl hits back at China over sea infra work

    The Philippines assailed China yesterday for contesting Manila’s planned repair and maintenance works on some islands in the West Philippine Sea, saying they are “in no way comparable” to the Asian power’s massive reclamation activities which are in violation of international laws. “The Philippines’ possible undertaking of necessary maintenance and repairs on its existing facilities in the West Philippine Sea, over which the Philippines rightfully exercises sovereignty, sovereign rights and …


Should Aquino be held accountable over the Mamasapano operations?

Poll Choice Options