Thursday

27th Apr 2017

Spanish and Italian borrowing costs soar

  • The Deutsche Borse in Frankfurt (Photo: Astrid Walter)

The cost of insurance against a Spanish default reached another record on Monday, with Italy's borrowing costs also rising sharply amid continued market fears about the fate of the eurozone.

"With a risk premium at 500 points, it is very difficult to raise finances," Spanish Prime Minister Mariano Rajoy said Monday (28 May) in a press conference. His country's 'debt risk premium' - the default insurance investors demand on Spanish bonds compared to German bunds - that day leapt to a eurozone record of 514 basis points.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

But Rajoy insisted Spain was not seeking financing from the eurzone bail-out fund, but rather alluded to earlier calls for the European Central Bank (ECB) to resume its bond-purchasing or cheap bank loans programmes which last year helped both Spain and Italy lower their borrowing costs.

"We need a clear, forceful and energetic defence of the euro," Rajoy said. Last week he noted that ECB money is a more pressing issue than the theoretical discussion about further political integration of the eurozone.

Part of Spain's problem is its troubled banks. The government on Friday pumped an extra €19 billion into Bankia, its fourth-largest lender, in what is so far the biggest Spanish bank bail-out. Madrid already injected €4.4 billion earlier this month. Reports suggest another €30 billion may be needed - with an independent audit under way to examine the state of Spanish lenders.

Fears about a possible Greek exit from the eurozone, labelled "Armageddon" by some senior bankers, are affecting Spain as it seeks funding from the markets.

Charles Dallara, the manager of the International Institute of Finance, an umbrella group of the world's largest banks, last week said a Greek exit would cost more than €1 trillion and seriously damage other southern countries.

“Those who think that Europe, and more broadly the global economy, are really prepared for a Greek exit should think again," Dallara told Bloomberg in an interview.

Similar to Spain, Italy's borrowing costs also spiked on Monday, with two-year bonds selling at extra costs of over four percent, compared to a 3.3 percent rate last month before the Greek elections.

Meanwhile, German bonds last week sold at a record of zero-percent interest, as investors are flocking to these 'safe-haven' treasury papers.

European Parliament chief Martin Schulz, himself a German national, said last week that this widening gap between Germany and other eurozone countries is "destroying Europe" and urged the German chancellor to change policies.

A meeting called by Italy's premier Mario Monti next month in Rome with Rajoy, France's Francois Hollande and Germany's Angela Merkel is likely to see more pressure put on the German leader to accepting some form of joint debt issuing - the so-called eurobonds.

The prospect of having these joint bonds could help alleviate the borrowing problem for southern countries in the long run and lift the pressure from the ECB to continue buying up debt or injecting cheap loans into the eurozone banks.

But Germany, who borrowing costs would rise under such a scheme, has said this is a long term solution only.

Italy chastises Germany for handling of euro crisis

A German finance ministry official caused a stir Thursday by urging deficit countries to "become ants" rather than profligate "grasshoppers." Italy's Mario Monti urged Berlin to reflect "deeply" on its approach to the crisis.

Eurogroup makes 'progress' on Greek deal

Eurozone ministers endorsed an agreement in principle between the Greek government and its creditors over a new package of reforms. But talks on fiscal targets and debt could still block a final agreement.

New anti-trust complaint looms over Microsoft

At least three security software companies “met several times” with the European Commission to complain about Microsoft’s alleged abuse of its market position. A formal case could follow.

Investigation

MEPs oppose EU agency to prevent Dieselgate II

The European Parliament said on Tuesday that there should be more EU oversight on how cars are approved, but stopped short of calling for an independent EU agency.

News in Brief

  1. EU parliament moves to lift Le Pen's immunity
  2. EU Commission launches probe into Hungary's university law
  3. Scots slowly losing appetite for independence - poll
  4. Council of Europe puts Turkey on watch list
  5. EU to put parental leave on political agenda
  6. Israel cancels German meeting over human rights groups
  7. Hungary's Orban will participate in EU parliament debate
  8. Malta floats cash-for-refugees plan

Stakeholders' Highlights

  1. UNICEFRace Against Time to Save Millions of Lives in Yemen
  2. Nordic Council of MinistersDeveloping Independent Russian-Language Media in the Baltic Countries
  3. Swedish EnterprisesReform of the European Electricity Market: Lessons from the Nordics, Brussels 2 May
  4. Malta EU 2017Green Light Given for New EU Regulation to Bolster External Border Checks
  5. Counter BalanceCall for EU Commission to Withdraw Support of Trans-Adriatic Pipeline
  6. ACCAEconomic Confidence at Highest Since 2015
  7. European Federation of Allergy and Airways60%-90% of Your Life Is Spent Indoors. How Does Poor Indoor Air Quality Affect You?
  8. European Gaming and Betting AssociationCJEU Confirms Obligation for a Transparent Licensing Process
  9. Nordic Council of MinistersNordic Region and the US: A Time of Warlike Rhetoric and Militarisation?
  10. European Free AllianceEFA MEPs Vote in Favor of European Parliament's Brexit Mandate
  11. Mission of China to the EUXinhua Insight: China to Open up Like Never Before
  12. World VisionViolence Becomes New Normal for Syrian Children

Latest News

  1. EU starts legal action against Hungary
  2. Brexit is about Europe's future as well
  3. Power struggle in Greenland: Three reasons why the EU should care
  4. Nordic and Baltic countries step up digitalisation efforts
  5. European states still top media freedom list
  6. Let’s not put European public health at risk
  7. Threatened Budapest university calls for EU support
  8. Orban set to face down EU threats