The Spanish stock market hit a nine-year low yesterday, with the country’s borrowing costs soaring.
Analysts warned that the crisis in the eurozone was spiralling out of control, amid fears Spain will be the next domino to fall following the bailouts of Greece, Ireland and Portugal.
The Ibex – the benchmark index of the Madrid stock market – dropped 2.2 per cent to its lowest level since May 2003 as shares in banks including Santander, BBVA and Bankia tumbled.
Savaged stock: The turmoil in Spain was triggered by the Bankia lender asking for a state bailout
Spain’s 10-year bond yield – the interest the government pays to borrow – jumped to 6.5 per cent as investors demanded higher rates of return. That was the highest level since November and close to the 7 per cent danger zone widely seen as unsustainable for debt-riddled countries.
The gap between the German and Spanish yields – a key measure of the risk attached to holding Spanish debt – was the widest in the history of the euro.
The turmoil came after Bankia asked for a £15bn state bailout to save it from collapse. Its shares fell 27 per cent before clawing back some of their losses.
With Spain’s regions also in crisis – Catalonia issued a plea for help last week – analysts warned that the government’s finances are approaching breaking point. The recession has pushed unemployment in Spain up to nearly 25 per cent, the highest rate in Europe, and more than half of the country’s 16 to 24-year-olds are out of work.
Chris Scicluna, an analyst at Daiwa Capital Markets, said: ‘The euro area crisis, once again, risks spiralling beyond the control of policymakers. Certainly, the credibility of the Spanish authorities in coping with the twin risks posed by its devolved regions and banks has taken a significant blow.
‘The banking sector is starting to resemble a black hole for the public finances. The eventual burden to be placed on the public finances by definitively cleaning up Spain’s banks is now anyone’s guess.
It is arguably now looking more a matter of when rather than if it will need to ask for help from the euro area and IMF.’ Italian borrowing costs also rose – a 10-year yield reaching 5.87 per cent – but the Greek stock market closed nearly 7 per cent higher after a poll showed growing support for parties that back the harsh terms of its latest bailout.
The rally raised hopes that the country will not be forced out of the euro after next month’s elections amid a backlash against austerity.
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