All eyes are on Spain as the euro crisis seems to deepen by the day. The country’s banks are in dire need of capital, which Madrid is unable to easily provide. Yet the government continues to resist outside pressure to accept bailout money from their euro-zone partners. Instead, in an effort to avoid submitting to conditions that would be imposed in exchange for a bailout, Madrid has turned to the financial markets, an approach widely considered to be both unsustainable and a grave risk to the health of the euro zone.
Laden with bad loans left over from the collapse of the country’s real estate bubble in 2009, the country’s most troubled institution, Bankia S.A., reportedly needs €19 billion ($24 billion) in fresh capital. In total, the Spanish banking sector is thought to need between €75 billion and €100 billion worth of liquidity. Borrowing costs on 10-year bonds, meanwhile, have crept close to the dangerous 7 percent mark, widely considered to be unsustainable.
Spanish Treasury Minister Cristobal Montoro revealed how dire the situation has become on Tuesday. “The risk premium says Spain doesn’t have the market door open,” he told Onda Cero radio. “The risk premium says that as a state, we have a problem in accessing markets, when we need to refinance our debt.”
Spain has asked for euro-zone bailout money to be made available directly to its financial institutions, a strategy to which Germany is strictly opposed. Europe “needs to support those that are in difficulty,” Rajoy told a Senate session on Tuesday, calling for a “banking union” to oversee the finanancial industry. While the European Commission and European Central Bank (ECB) are expected to present ideas for creating such banking oversight at a summit in late June, any such plan would be almost certainly be too late to help Spain.
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