On Friday the Spanish government cut its economic growth forecast for 2013 from 0.2 per cent growth to a contraction of 0.5 per cent.
The Spanish governments borrowing costs shot above 7 per cent, the rate at which other countries have been unable to afford to borrow money.
MADRID: A eurozone bailout for Spains banks and a tough batch of pay cuts and tax hikes have not been enough to save the country from the risk of a full blown bailout, analysts warn.
Squeezed between public outrage at its austere economic reforms and pressure from European authorities to strengthen its public finances, the government has run out of ammunition.
Hundreds of thousands of Spaniards took to the streets Thursday in the biggest of a string of angry anti austerity protests.
On Friday, the stock market plunged 5.8 per cent and sovereign interest rates rose to dangerous levels, despite the eurozones approval for a credit line of up to 100 billion euros ($122 billion) to save the banks.
They stood “at a still substantial 391.889 billion euros, or 36.9 per cent of nominal GDP (gross domestic product) in the first quarter of 2012,” he said.
Spain has entered a “death spiral” with its rising financing costs complicating its efforts to pay off its debts, according to Rabobank analyst Richard McGuire.
Analysts at consultancy Capital Economics warned: “With the outlook for Spains public finances still closely tied to that for its banking sector, there remains a strong risk that the Spanish government will need its own bailout.
Spain is due this month to become the fourth eurozone country, after Greece, Ireland and Portugal, to get bailout funds in the crisis after the eurozone Friday approved the aid for Spanish banks on Friday.
Despite this, the return on Spanish 10 year bonds jumped above the 7.0 per cent danger level and another key measure, the difference between the yields on Spanish and safe haven German bonds, topped 600 points.
That adds to existing worries about saving the ailing banks, which the central government will rescue with up to €100 billion ($122.9 billion) in euro zone loans.. These troubles have intensified fears that Spain will be the next euro zone country after Greece, Ireland and Portugal to need a sovereign bailout. The problem is Spain’s economy is bigger than those three combined and financing its debt could prove too expensive for the rest of the eurozone.. The aid request by the region of Valencia, if approved, would come at a cost: it will have to abide by strict budgetary conditions set by the central government.. For many in Spain, Valencia is a symbol of all that went wrong in the boom years: rampant spending to build row after row of beachside condos that are now empty, or repossessed by banks and being sold at fire sale prices.. The fund for the regions was created only last Friday and will have €18 billion in capital.
Without better economic news, “Spain may risk losing market access” for borrowing to finance its day to day operations, he warned.
Spains stock market plunged 6 per cent and its borrowing costs spiked after a regional government asked for a financial lifeline.
On Friday the Spanish government cut its economic growth forecast for 2013 from 0.2 per cent growth to a contraction of 0.5 per cent.
Analysts at financial group Citi forecast a much harsher contraction of 2.1 per cent in 2012 and 3.1 per cent in 2013.
Pingarron saw the risk of a full bailout for Spain as still relatively remote, however, due to its formidable cost, estimated at about half a trillion euros overall.
According to the latest figures, the country’s gross domestic product is expected to contract 0.5 percent in 2013, compared with the previous forecast for it to grow by 0.2 percent.
A full bailout for Spain and its contagion to Italy would be unfeasible for the eurozone and everyone knows it,” Pingarron wrote in a note.So although its seems an obvious solution, it doesnt seem close to happening.Spain insists the European Central Bank (ECB), which in December and February offered loans at ultra low rates to banks to ease liquidity, must step in again with further measures to break the vicious circle.The moment of truth for the ECB, where it may be forced to step in decisively, could be approaching more quickly,” wrote Schulz.
Brielle Shreiber is a business journalist based in Munich, Germany. Brielle 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. Brielle 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.
