For much of the past two years, Spain and Italy have swapped the inglorious title of Biggest Euro-Zone Worry.The latest round has gone to Spain.
Friday was another miserable day in Madrid. The stock market closed down 3.58%, and yields on Spanish 10-year bonds are now at 5.99%, up from 5.36% at the beginning of the month.
They are at their worst level all year. Spain now has all the hallmarks of a country in serious trouble: desperate moves to close a stubborn fiscal gap, steadily rising bond yields that indicate financing is being cut off, and macroeconomic weakness that suggests the austerity push is driving the economy deeper into a rut.
Behind today’s mess are three worrisome factors.
First, data from the Bank of Spain show that Spanish banks’ total borrowing from the European Central Bank touched €316 billion in March, up from €170 billion in February.
That huge run-up is thanks to the banks’ borrowings from the ECB’s latest Long-Term Refinancing Operation, which took place on Feb. 29 but settled in March.
Everyone knew that the Spanish banks were heavy users, but the latest data makes plain just how heavy: they now account for 28% of the ECB’s total lending to banks.
Second, that China GDP number. The euro zone’s weak countries desperately need good global growth. Anything that puts a dent in it is bad news.
Third, there are lingering doubts about if–and how–the euro zone might help Spain. A full-scale bailout would badly strain the resources of the euro zone’s rescue funds; the Greek experience shows that covering a country’s financing needs is a lot more expensive than anyone projects at the outset.
A “bailout lite”–help for the banks from the rescue fund, for instance–would be less costly, but it requires walking a fine line. The idea is to provide some of the money Spain needs while private markets provide the rest. But the very act of helping may scare off private creditors.
Another option is the ECB’s secondary-market purchase program, which it used heavily in the early days of the crisis but has since left fallow. Friday, ECB board member Klaus Knot, of the Netherlands, said “there is no good reason to restart it.”
He hopes, he said, “it will never have to be used again.”
For holders of Spanish bonds who’d love to see a deep-pocketed buyer enter the market, that’s not a good sign.
wsj.com
Friday was another miserable day in Madrid. The stock market closed down 3.58%, and yields on Spanish 10-year bonds are now at 5.99%, up from 5.36% at the beginning of the month.
They are at their worst level all year. Spain now has all the hallmarks of a country in serious trouble: desperate moves to close a stubborn fiscal gap, steadily rising bond yields that indicate financing is being cut off, and macroeconomic weakness that suggests the austerity push is driving the economy deeper into a rut.
Behind today’s mess are three worrisome factors.
First, data from the Bank of Spain show that Spanish banks’ total borrowing from the European Central Bank touched €316 billion in March, up from €170 billion in February.
That huge run-up is thanks to the banks’ borrowings from the ECB’s latest Long-Term Refinancing Operation, which took place on Feb. 29 but settled in March.
Everyone knew that the Spanish banks were heavy users, but the latest data makes plain just how heavy: they now account for 28% of the ECB’s total lending to banks.
Second, that China GDP number. The euro zone’s weak countries desperately need good global growth. Anything that puts a dent in it is bad news.
Third, there are lingering doubts about if–and how–the euro zone might help Spain. A full-scale bailout would badly strain the resources of the euro zone’s rescue funds; the Greek experience shows that covering a country’s financing needs is a lot more expensive than anyone projects at the outset.
A “bailout lite”–help for the banks from the rescue fund, for instance–would be less costly, but it requires walking a fine line. The idea is to provide some of the money Spain needs while private markets provide the rest. But the very act of helping may scare off private creditors.
Another option is the ECB’s secondary-market purchase program, which it used heavily in the early days of the crisis but has since left fallow. Friday, ECB board member Klaus Knot, of the Netherlands, said “there is no good reason to restart it.”
He hopes, he said, “it will never have to be used again.”
For holders of Spanish bonds who’d love to see a deep-pocketed buyer enter the market, that’s not a good sign.
wsj.com
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