Spanish Debt Fears Sour Markets Across Europe
Stock markets across Europe have taken a hammering as investors sense Spain needing both a bank and government bailout.
In early Monday trading Spanish 10-year bond yields shot up to as much as 7.56%, as markets in Europe and Asia come under increasing strain amid the eurozone debt crisis.
Spain's economy minister Luis de Guindos ruled out that the country could need a full-scale bailout, as the yield rates - the government borrowing cost - reached the highest level since creation of the euro.
Asked about this possibility on the sidelines of a congress hearing about the European aid to ailing Spanish lenders, Mr De Guindos said: "Absolutely not."
However the markets were not impressed and the Spanish Ibex stock exchange at first lost 5%, the Greek market plunged by 6%, while in Italy it dropped by 3.77% as the CAC 40 in Paris lost 2%.
By late afternoon the Ibex eased to close 1.1% down and Italy's Mib off 2.76%. The CAC 40 dropped 2.89% and Germany's Dax was hit by 3.18%.
The London FTSE 100 closed at 2.09% down and there were no risers in the day.
Biggest fallers were Evraz, down 6.9%, Aviva at 6.6%, Vedanta off 5.1%, Hargreaves Lansdown losing 4.6% and Petrofac down 4.4%.
In response to the dramatic sell-off Italy's exchange regulator announced a ban on short-selling of stocks, which is expected to last until Friday, and Spain followed the Italian lead to institute a three-month ban of short selling all stocks
Although German officials tried to calm markets its finance minister Wolfgang Schaeuble then announced a decision to meet Mr de Guindos on Tuesday.
Adding to the suspicion of eurozone disunity, the European Commission announced that the next bailout tranche aid for Greece is unlikely to be paid before September.
The market strain comes as the Bank of Spain said the country's economy contracted by 0.4% on a quarterly basis in the three months from April to June, having contracted by 0.3% in the first quarter of the year.
In a monthly report the central bank also estimated the economy contracted by 1.0% on an annual basis, compared with a fall of 0.4% in the preceding quarter.
Bank of Spain deputy governor Fernando Restoy said the solution to the current debt crisis was to make more cuts, more reforms, and more mechanisms to strengthen the eurozone economy.
"Current market problems reflect problems in Spain as well as the eurozone," he said.
The Spanish market slide has occurred as the autonomous region of Valencia asked for a lifeline from central government after running out of money, and the Murcia region reportedly sought 300m euro (£233m) help.
On Friday, eurozone finance ministers held a conference call to approve an aid package for Spanish banks of up to 100bn euro (£77bn).
But by late Friday afternoon the Ibex dropped by as much as 5.8%. Italy's Mib was down by as much as 4.5%. In London, the FTSE 100 closed 1.09% down and the Dow Jones was off 0.93%.
Meanwhile, the euro reached an 12-year low against the yen as Asian investors moved out of the troubled currency, and the Nikkei closed 2.99% down and the Hang Seng ended 1.86% lower on Monday.
what do you think?
Socialists, having spent all their own people's money, now need everyone else's money - A modern tale we know sooooo well.
Socialists are good at taking money and spreading poverty
How true, as Margaret Thatcher once said, "The trouble with Socialism is, eventually, you run out of other people's money".
Capitalism is the unequal share of money, Socialism is equal shares of misery
Capitalists don't spend their money, they just acrue more interest and lend it to poor socialists, then pull the rug from under them and cause a credit crisis.
Ha! all of the above get my vote!
Ahhhh....Maggie, how we miss her now. She would kick the sour kra*t out of Merkel, and puit things right no problem.
The soap opera that is the eurozone rumbles on
Is it a soap opera Dave, or a Greek tragedy ?
Actually it's to do with our own greed! We keep borrowing money on credit cards, loans and outlandish mortgages, added to such demand pushing the property market into orbit and the crunch had to happen. You can blame banks and government all you like (and they fuelled our passion for debt undoubtedly) but it comes down to us at the end of the day.
Total debt on things like credit cards, and individual banks, is tiny set against governments debts like Italy/Spain/Greece/portugal! These have been fu n ding almost their entire spending, for years, on borrowing as opposed to revenue.
yeah...what chris said. I havent borrowed any money since 1985 and I don't owe any, so I take no responsibilty what so ever. Socialists done it. They sneeked up behind us when we wern't looking and royally scr*wed us all.
The crisis in Spain was caused by speculators, property developers and banks willing to fund it all. It was not caused by the Euro or by socialists.
Yes thats part of it. The rest is a flawed monetary system.
But Greek bonds were only 'bought' because they were backed by the Euro? The Mediterranean Governments were happy to live off the, apparently endless, money stream.
nah...socialists done it mate. They had the same attitude as the 3 B's...blair brown and balls..."lets spend all the money and then some, It'll be alright"
europe is dead and buried . we are following a myth because of the penalty clauses of fines if we leave the eec .just running our own country is difficult enough with our mp,s .
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Money down the drain, my money
This has been made worse due to the Spanish government not being more open and up front about the extent of the crisis. The Euro is a disaster, and yet those of us who pointed out that such divergent economies could never function with common interest rates and exchange rates were talked down to by the Eurocrats. Thank goodness we are not part of the Euro, but we also need a referendum on continued EU membership asap. According to yesterday's newspapers, the EU needs an additional top up payment - no way!