Spain's effort to avoid further rescue aid from Europe was dealt a new blow as a credit downgrade by Standard & Poor's led to renewed pressure on its borrowing costs.
Although prime minister Mariano Rajoy is in no rush to seek an increased bailout, some European officials believe the S&P downgrade may bring a fresh aid application closer. Spain’s 10-year bond yield finished down yesterday at 5.82 per cent but it temporarily approached 6 per cent after the downgrade. The yield was above the critical 7 per cent level before the European Central Bank adopted a new bond-buying campaign to help stricken countries.
Any direct ESM aid to Spanish banks would be designed to avoid a repeat of the Irish situation in which the bank bailout overwhelmed the State. However, confidence in the June deal was undermined when Germany, Finland and the Netherlands declared that any ESM bank rescues would not deal with historic debts. SP cited this manoeuvre when cutting its rating on Spanish bonds to “BBB-/A-3” from “BBB+/A-2”, coming close to removing the “investment grade” status Spain needs to borrow on the open market.
The downgrade comes as EU leaders face calls to restate their June pledge at a summit next week in Brussels. “Doubts over some eurozone governments’ commitment to mutualising the costs of Spain’s bank recapitalisation are, in our view, a destabilising factor for the country’s credit outlook”, said S&P. “Our understanding from recent statements is that the Eurogroup’s commitment to break the vicious circle between banks and sovereigns, as announced at a summit on June 29th, does not extend to enabling the ESM to recapitalise large ongoing European banks."
Full article
© The Irish Times
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article