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Monday, June 18, 2012

Spain's borrowing costs soar even after Greek election results



Even though a pro-bailout party came first in the Greek elections pressure on Spain and Italy increased. Borrowing costs soared in both countries widening even further the cost of financing in those countries versus Germany.

In Spain the yield of ten years bonds rose above 7 per cent. Yields at this level are regarded as unsustainable and drive the country into more debt. While Italy was just above 6 per cent that is still very high.

The Spanish Treasury Minister said:"The financial markets ... aren't relaxing their pressure on Spain. Doubts continue regarding the construction of Europe, about the present and the future of the euro," Markets barely reacted to the news that the pro-bailout New Democracy party had come first in Greece. No doubt investors realize that Greece's problems remain unsolved along with those of other countries such as Spain and Italy.

Many analysts point out that the short term band aids applied so far such as injecting money into Spanish banks do not solve the problem of very tight expensive financing in the middle of an economic decline. Economist Michala Marcussen notes:"While Greek euro exit fears have ... eased, this (election) outcome does little to alleviate the weak fundamentals that currently weigh on Spain and Italy," .For much more see this article.

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