MADRID/TOKYO (Reuters) – Spain said on Tuesday it was losing access to credit markets and Europe should help revive its banks, as finance chiefs of the Group of Seven major economies conferred on the currency bloc’s worsening debt crisis but took no joint action.
Euro area services and manufacturingoutput contracted at the fastest pace in almost three years in May, adding to signs the economy is suffering under the worsening sovereign debt crisis.
Treasury Minister Cristobal Montoro sent out a dramatic distress signal about the impact of his country’s banking crisis on government borrowing, saying that at current rates, financial markets were effectively off limits to Spain.
Last month, global financial markets were shaken by news that Spanish citizens were pulling over $1 billion out of Bankia, the now nationalized Spanish lender.
“The risk premium says Spain doesn’t have the market door open,” Montoro said on Onda Cero radio.
And that is lacking at the moment,” she said.. With Greece, Ireland and Portugal all under international bailout programs, financial markets have grown increasingly anxious about the risk that Spain, mired in a deepening banking crisis, could be forced to do likewise.. Sources say Spain’s Prime Minister Mariano Rajoy is pressing for a direct European rescue for the lenders with moral support from the European Commission, but Germany is reluctant. Media reports say Berlin is instead pressing Madrid to request a full bailout.. Lagarde said decisions need to be made about Spain’s banking sector, but denied the country had sought the IMF’s aid for recapitalization. She refused to comment on how the IMF would react to such a request.. “In the short term, there are clearly decisions that need to be made in relation, for instance, to the Spanish banking system.
And even after the elections, as they are unlikely to bring a clear cut decision either way,” said Dirk Schumacher, senior European economist at Goldman Sachs.. Markit’s Eurozone Composite PMI fell to 46.0 in May from April’s 46.7, its lowest reading since June 2009 and its fourth month below the 50 mark that divides growth and contraction. It was little changed from a preliminary reading.. Of particular note was the suggestion Germany is no longer generating the sort of economic growth that kept the wider euro zone out of recession in the first quarter.. “Companies report business activity to have been hit by heightened political and economic uncertainty, which has exacerbated already weak demand both in the euro area and further afield,” said Chris Williamson, chief economist at survey compiler Markit.. German industrial orders on Tuesday added to signs that Europe’s largest economy is heading for a slowdown, falling in April at their fastest rate since November 2011 as orders from abroad dried up.. Elsewhere, business activity in the Brazilian services sector fell in May for the first time since July 2009, reflecting how manufacturers’ persistent woes have started to drag on the main engine of Brazil’s recent economic growth.. Australia’s central bank decided on Tuesday to cut interest rates for a second month running to try to boost confidence in that country. The Bank of Canada, meanwhile, held rates steady and softened its previous hawkish language, in part nodding to the deepening crisis across the Atlantic.. The PMIs have a good record of tracking economic growth and appear to counter predictions from ECB President Mario Draghi for a gradual recovery over the course of the year.. “While the ultimate solution has to be in some form or shape political, the ECB can at least make sure there’s time to come up with a solution.
Europe has taken a number of very important steps in the last months to address the crisis,” Froman told a panel at the CSIS think tank. “It’s clear now from the markets that they expect more, and more is needed.
“Japanese Finance Minister Jun Azumi said the G7 finance chiefs agreed to work together to deal with the problems facing Spain and Greece, where elections later this month could push Athens closer to the euro exit door.”.
We see market anxiety over world economy largely stemming from Europe’s problems,” Azumi told reporters in Tokyo.”.
BIGGER SOLUTION”European leaders, alarmed by the latest turn of events, have begun thinking seriously about the economic union needed to make the single currency project secure. But that end game is months or years away.”.
What we have learnt since the weekend is that all the talk about a bigger solution, a bigger response from the politicians is gaining some steam,” said Rainer Guntermann, strategist at Commerzbank in Frankfurt. “At the same time it doesn’t look like they have a quick fix at hand, not a fundamental game changer at this point in time.
“One senior European G7 source, speaking just before the teleconference, said it was set to turn into a “Germany bashing session”, with other partners applying severe pressure on Berlin to do more to stimulate growth and help the euro zone.The source, who requested anonymity due to the confidential nature of the call, confirmed that Germany was pushing Spain to accept international aid, as Greece, Ireland and Portugal have done, to help it recapitalize stricken banks.”.
Cross border lending by global banks plunged by almost $800 billion in the fourth quarter of 2011 as deposits were pulled from PIIGS and other Euro Zone banks according to the Bank for International Settlements.
Danielle Northrop is a business journalist based in Sydney, Australia. Danielle has a passion for financial markets and breaking news stories and loves writing about business news, stock market, and economic opinions that matters most to its audience. Danielle spends a lot of time discovering and researching latest financial markets and industry news stories in order to make sure the latest and greatest stories are brought to you first on BigBoardNews.com.