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Wednesday 27 August 2014

Debt crisis: Spanish borrowing hits unaffordable 7pc level

Independent.ie reporters

Published 14/06/2012 | 10:43

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In Spain's case, paying a 7pc interest rate to borrow new money means it becomes extremely expensive for the country to pay for its public services

THE COST of Spanish borrowing has hit a euro-era high of 7pc – the level that is believed to be unsustainable and too expensive for the country to pay its public servants and service its debts.

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The move is a nightmare for European leaders and comes as German Chancellor Angela Merkel rejected any quick solutions to the debt crisis.

Earlier, Moody’s also warned that the country’s rating could be reduced to junk within the next three months.

The yield on 10-year bonds hit 7.03pc this mornings.

Italian borrowing costs hit over 6.3pc as the country got a key debt auction away while all eyes are also on Greece ahead of a key election on Sunday.

Ms Merkel said Europe must pursue the "Herculean task" of closer political integration.

Speaking to parliament before a meeting of Group of 20 leaders in Los Cabos, Mexico, next week, the chancellor reiterated her opposition to "miracle solutions" like joint eurozone bonds and a Europe-wide deposit guarantee scheme for banks, saying Germany could only go so far.

"Germany is strong, Germany is the economic engine and Germany is the anchor of stability in Europe. I say that Germany is putting this strength and this power to use for the well-being of people, not just in Germany but also to help European unity and the global economy," Mrs Merkel said. "But we also know, Germany's strength is not infinite."

Concerns about Europe's debt crisis, which first erupted in late 2009, have grown in recent months as contagion has spread to larger members of the single currency bloc.

Spain announced at the weekend that it would seek a rescue of up to €100bn for its banks.

On Sunday, Greece votes in an election where a radical left party that opposes the strict terms of the country's bailout could emerge victorious, increasing the chances of it abandoning the euro and returning to the drachma.

Germany's partners, including the United States, have ratcheted up the pressure on Ms Merkel to take more radical steps to stem the crisis and she acknowledged in her speech that "all eyes" would be focused on Berlin in Los Cabos, where leaders will also discuss IMF reform and "green growth".

"No matter how important the other themes are, they will all be overshadowed in Los Cabos by one that has preoccupied us inGermany, in Europe and internationally for the past two years, and that is the European sovereign debt crisis," Ms Merkel said.

"It will be the central theme. It will dominate the discussions. And therefore there is no doubt that we, thatGermany, will be the centre of attention. It is so. All eyes are focused on Germany because we are the biggest economy in Europe, because we are a big exporter."

(Additional reporting Reuters)

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