There are signs of serious jitters in the City today. As feared, the yield on Spain’s 10-year bonds has now risen about 6% (6.03% at pixel time). The stock markets are all still lower,, with Spain’s IBEX down 2.66%.
There are several triggers for this sudden chill wind. The protests in Spain last night are certainly a factor – with analysts trying to assess whether the Spanish people have been pushed to the limit. Portugal’s u-turn on its latest tax rises (which threatened a political crisis in Lisbon) has also served as a reminder that politicians are still answerable to the people.
Another factor is that the eurozone’s commitment to recapitalise its banks through the European Stability Mechanism appears to be fraying. A statement last night from the finance ministers of Finland, Germany and the Netherlands appeared to reject some of the decisions made at last June’s summit (great analysis here on FT Alphaville).
If legacy banking assets aren’t going to included, how on earth with Spain and Ireland scrub their financial sectors clean?
The fear that Germany, the Netherlands and Finland have reneged on the deal has also hit Irish sovereign debt, pushing up the yield on its 10-year bonds to 5.213%.
As Peter Spiegel wrote in the FT today:
The need for Ireland and Spain to pump billions into their banking sector to keep them afloat forced otherwise fiscally prudent governments into eurozone bailout programmes with painful austerity measures that have exacerbated recessions.
Under the June deal, such bailouts would no longer be the responsibility of national governments but would shift to the eurozone rescue fund, the European Stability Mechanism, which was given the authority to inject capital directly into struggling banks. As part of the deal, Ireland was given a promise of equal treatment with Spain……………………………….
full article at source:http://www.guardian.co.uk/business/2012/sep/26/eurozone-crisis-general-strike-greece-spain
- Germany to Spain and Ireland: Drop Dead (forbes.com)
- Germany Losing Patience With Spain on Aid, Merkel Ally Says – Bloomberg (bloomberg.com)
- Tables turn on Spain with pressure to seek bailout (todayonline.com)