"This 100 billion will be added to the public finances of Spain so it just reinforces the link between banks and the sovereign", Olly Burrows, credit analyst at Rabobank International, said in a phone interview from London. "Spain is receiving funds to bail out its banks, which have been buying Spanish debt while everyone else has been getting out.”
Spain agreed to take the aid in loans to be added to the public debt burden that rose to 69 per cent of gross domestic product last year. The loans, which Economy Minister, Luis de Guindos, said will carry an interest that’s more favourable than market rates, will be channelled through the country’s bank rescue fund.
Spanish banks were among the biggest beneficiaries of €1 trillion of three-year emergency loans from the ECB, which were recycled into sovereign bonds in a trend Economy Minister Luis de Guindos said in April “increased the correlation between sovereign risk and banking risk".
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