Arab Today, arab today spain denies bailout needed as economy sinks
Last Updated : GMT 04:33:33
Arab Today, arab today
Arab Today, arab today

Spain denies bailout needed as economy sinks

Arab Today, arab today

Arab Today, arab today Spain denies bailout needed as economy sinks

Madrid - AFP

Spain denied Monday that it needed a full international bailout as the economy shrank even faster and its long-term borrowing costs jumped to dangerous highs sending world markets into a nosedive. The Bank of Spain said the economy contracted 0.4 percent in the second quarter, worse than the 0.3 percent of the first, citing the impact of the debt crisis on consumer spending and confidence. On Friday, the government said the recession would continue next year, instead of ending with modest growth as it had previously forecast. The bad data compounded Madrid\'s pressing problems, chief among them how to cut an unprecedented unemployment rate of more than 24 percent while at the same time stabilising a stricken banking system and the public finances. Financial markets have turned increasingly against Madrid in recent weeks after an initial positive reaction to a massive 65 billion euros austerity package turned sour, with each new initiative failing to hold the line. In afternoon trade, the yield -- the rate of return investors earn -- on the benchmark Spanish 10-year government bond jumped to 7.4770 percent from 7.225 percent on Friday, well above the 7.0 percent danger level for long-term funding. But despite speculation that it would make a move, the European Central Bank remained out of the fray, refusing to enter the markets to ease debt strains as it had last year when yields from Spain and Italy hit similar danger levels. \"There are fears that Spain is edging closer to being forced to seek a full scale bailout,\" said Joshua Raymond, chief market strategist at City Index traders. Borrowing costs for other struggling eurozone states were also under pressure despite an EU bank rescue deal worth up to 100 billion euros ($122 billion) for Spain which was finalised Friday. The Italian 10-year bond yield jumped to 6.332 percent from 6.149 percent. Any yield over 6.0 percent is widely seen as unsustainable for long-term funds, with 7.0 percent the level at which Greece, Ireland and Portugal had to ask for outside help from the EU and International Monetary Fund. Spanish Economy Minister Luis de Guindos insisted Monday that the country did not need a full bailout but noted that the crisis appeared more than any one state could cope with. \"Spain is a solvent country and this solvability will allow us to get through the difficulties we are facing right now,\" the minister said. De Guindos will hold talks with his German counterpart on Tuesday, a German government spokeswoman said, adding that Berlin had \"no information\" that Spain was poised to make an application for a full-blown state bailout. News on Friday that the Valencia region was to ask the central government for financial aid raised the prospect that Madrid will face greater calls on its resources from provincial governments at a time when it is strapped for cash. Spain last year missed its public deficit target of 6.0 percent of economic output by a wide margin, coming in instead at 8.9 percent, with the 17 regional governments, which fund education and health, largely blamed for the blowout. European stockmarkets also fell sharply Monday, with Madrid down as much 4.01 percent at around 1100 GMT before it later recovered to down one percent after authorities imposed a ban on the short-selling of stocks. In short-selling, investors are betting that a stock will fall in price, which critics say only adds to the downward pressure in falling markets. In Italy, where a similiar ban was implemented, stocks slumped 3.00 percent. London fell 2.11 percent, Paris was down 2.51 percent and Frankfurt shed 3.09 percent following heavy losses in Asian trade. Wall street was also down sharply. The Spanish government recently announced massive spending cuts and other measures to stabilise its public finances but the austerity programme seems only to have driven speculation that Madrid may need a full EU-IMF bailout. \"Just as the bailout plan for Spanish banks was finished, we are now confronted with the problems of the Spanish regions with Valencia, which has requested financial support, and other regions that may follow,\" he said. \"This doesn\'t end, and the market is completely overwhelmed.\" To add to the tensions on the markets, Greece moved centre stage as EU and IMF officials readied for a review this week which will determine whether Athens gets another cash injection to keep it afloat beyond the summer. Their report will determine whether Greece will receive fresh loans of 31.5 billion euros ($38 billion) by September under its debt rescue programme. Amid the turmoil, the ECB remains reluctant to restart its programme of buying up bonds of eurozone nations, data suggested Monday. According to data published on the ECB\'s website, the central bank did not buy any sovereign bonds last week, as it has not done since February.

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Arab Today, arab today spain denies bailout needed as economy sinks Arab Today, arab today spain denies bailout needed as economy sinks

 



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