Business World

Wednesday 21 March 2018

European crisis: Spain in danger zone as talks continue in Greece and Press Association reporters

THE cost of Spanish borrowing rose above the 6pc danger level today while Greek coalition talks continued.

The yield on ten-year-bonds hit 6.022pc and it is moving closer to the 7pc perceived to be bailout territory as markets also digested the fallout from the latest elections in France and Greece.

It is understood the Spanish government will announce new rules obliging banks to make higher provisions against risky property-related assets later this week.

Spanish lender Bankia, which has been the subject of bailout rumours for several days, was the biggest faller in the Spanish stock market today.

This afternoon Spanish Prime Minister Mariano Rajoy said the country would continue with its austerity policies.

He added that Spain supports the EU's fiscal pact on cutting budget deficits.

"Spain, which has signed the EU fiscal compact, holds that this treaty must remain in place in the future," the conservative leader said.

Mr Rajoy added the "deficit reduction measures are a good policy."

The fallout from elections in France and Greece continued to weigh on stock and bond markets as well as the value of the euro today as Greek coalition talks continued.

Almost every crisis-hit European country that has held an election since disaster struck in 2009 has thrown out its leader including Brian Cowen and Fianna Fail.

Today Taoiseach Enda Kenny told the Dail that the vote on the fiscal compact on May 31 is more important that the last general election which elected Fine Gael and Labour into Government.

And he outlined three reasons to vote Yes – to continue investor confidence in Ireland, to ensure access to the ESM, and to enshrine “good housekeeping” budgetary rules in legislation - at the Business for Ireland’s Yes vote launch.

Speaking in the Dail , Mr Kenny accused Sinn Fein of leading the electorate into "the darkness of confusion" in its stance.

He told Gerry Adams that he was the leader of the No campaign, but said he did not think his heart was in it because he saw the impact of the lack of investment in other countries.

Mr Adams described the Taoiseach as the "poster boy for austerity" and he accused him of handing fiscal sovereignty over to "European central authority".

Meanwhile, the leader of a radical left-wing party tasked with trying to form a coalition government in Greece is to meet mainstream party heads today, a day after he demanded they withdraw their signatures from the international bailout deal.

Alexis Tsipras's meetings will include the leaders of conservative New Democracy and socialist PASOK - the two parties that suffered massive losses in Sunday's elections.

Voters furious at the handling of Greece's financial crisis and the severe austerity measures imposed in return for rescue loans from the International Monetary Fund and European Union abandoned the two parties, leaving no group with enough votes to form a government.

The people backed a hotch-potch of parties from the Stalinist left to the neo-Nazi right, but produced no clear winner in parliament. If no coalition can be agreed, new elections must be called.

Mr Tsipras said: "The pro-bailout parties no longer have a majority in parliament to vote in destructive measures for the Greek people. The popular mandate clearly renders the bailout agreement invalid."

His anti-austerity Radical Left Coalition party came second in the voting, winning 52 of parliament's 300 seats with 16.8pc of the vote.

He has the presidential mandate to end the political impasse by forming a governing coalition.

Antonis Samaras, head of the winning conservative party that has 108 seats, gave up on the same task after a few hours on Monday when Mr Tsipras spurned his advances.

Mr Tsipras said his government-building drive would focus on ending "the loan agreements of subservience" with Greece's international bailout creditors.

Greece has depended on rescue loans from its European partners and the International Monetary Fund since May 2010, after decades of profligate state spending and poor financial management priced it out of money-lending markets.

To secure the bailouts, Athens slashed pensions, salaries and health care, while repeatedly raising taxes. But more than two years of austerity have left the economy deep in recession and unemployment at a record high 21pc.

Greece will receive a €5.2bn tranche of bailout loans as anticipated tomorrow, despite ongoing political uncertainty.

"The payout will take place because it has already been approved," Amadeu Altafaj, a spokesman for European Union economy commissioner Olli Rehn, told news agency AFP.

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