Opinion: Spanish borrowing costs soar as the crisis on Spain’s domestic front intensifies
22/07/2012
By Chris Towner, director of FX advisory services at currency specialist HiFX
We have got used to the step by step approach of the EU leaders in coping with the sovereign debt crisis and we have seen more of the same with regards to their decision to loan the Spanish banking sector 100bn Euros.
Yes the Euro zone ministers approved the loan, but more details will follow in September and therefore leaving the markets in some doubt that Spain will have sufficient funds after it receives the first tranche.
Spain’s cost of borrowing has soared to a new euro-ear high of 7.5% as the crisis on Spain’s domestic front intensifies. Valencia has already requested Government help and it looks like others will follow as reports reveal that another six regions are lining up to seek support.
The pressure is building to its most intense since the start of this sovereign debt crisis and this is being reflected in the value of the Euro which has plumbed a new low in what has already been a poor year below 1.2100. If the EU leaders were hoping to have a summer rest from the crisis, then this is a major hurdle that needs to be addressed first. Markets come August often become slightly illiquid and a building crisis will add volatility. Yet again the ball has come very quickly back to the EU leaders!
The only advantage in all this is that the Eurozone now has a more competitive currency having dropped over 10% from its highs in the first quarter above 1.3400.
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