Published June 14, 2012
Spanish Economy Minister Luis de Guindos on Thursday appealed for calm amid continued volatility in financial markets, attributing the tensions to the impending Greek parliamentary elections.
De Guindos made his remarks after meeting with Prime Minister Mariano Rajoy and top economic officials on another dark day for Spain's benchmark bond, whose yield soared to nearly 6.92 percent at the close of trading, the highest level since Spain joined the euro in 1999.
Spain's risk premium, the extra return investors demand on the country's 10-year bond compared with equivalent safe-haven German debt, also widened Thursday to 543 basis points at the market close.
De Guindos acknowledged that that level of borrowing costs is unsustainable for the Iberian nation.
Bond yields jumped due to Moody's decision Wednesday to downgrade the country's sovereign credit rating by three notches to Baa3, the lowest investment-grade rating, and to the possibility that both Italy and Spain might require a sovereign bailout by the European Union, Saxo Bank analysts said.
Uncertainty surrounding the result of Sunday's general parliamentary elections in Greece and doubts about the conditions surrounding a recently approved European loan of up to 100 billion euros ($126 billion) for Spain's ailing banks heaped the pressure on Spanish debt and that of other euro zone countries.
Controversy also continued to swirl around European Commission Vice President Joaquin Almunia's remarks Wednesday that it may be preferable for one of Spain's bailed-out savings banks to be liquidated.
Almunia, a Spaniard, noted that European aid always entails conditions and oversight and said the closure of non-systemically important financial entities may be necessary in the future.
After ruling out that possibility, Spain's governing conservative Popular Party called Thursday for the resignation of Almunia, a member of the main opposition Socialists.
Almunia is scheduled to meet Friday in Madrid with Rajoy.
The president of No. 2 Spanish bank BBVA, Francisco Gonzalez, later weighed in on the issue, insisting that Spain's financial system is "dominated by solid entities" but that those institutions that "are not viable will have to disappear," alluding to smaller regional banks known as "cajas."
Gonzalez referred to a recent stress test report published on the Spanish financial system by the International Monetary Fund, which noted that "30 percent of the sector requires 80 percent of the identified capital needs."
"It's crucial, as the IMF report does, to differentiate between the institutions, and of course to identity those that are not viable, that must disappear," he said.
European finance ministers on Saturday approved Spain's request for up to 100 billion euros to shore up its troubled financial sector.
The European Commission issued a statement Monday insisting that the amount being made available to Spain is sufficient for even the "most adverse scenarios" and includes a "safety margin."
Prior to this week's bond market turmoil, Spain also hailed the financial assistance as a loan that Spanish banks "will receive under very favorable conditions" and predicted it would alleviate market pressure on Spain.
Spain's banks have been hard hit by the collapse of the country's 1995-2007 real estate boom, which has left them saddled with toxic property assets.
Recently nationalized BFA-Bankia - the country's fourth-largest financial institution - is seeking what would be the largest bank bailout in Spanish history after saying on May 25 it needs another 19 billion euros ($23.5 billion) to boost loss provisions.
The 2008 global financial meltdown came as Spain was struggling with the bursting of the property bubble. The ensuing slump has led to numerous business failures and pushed the country's jobless rate above 24 percent.
Nearly half of Spaniards under 25 are jobless and tens of thousands of families have been evicted from their homes after falling behind on their mortgages. EFE