Lending money to the eurozone's fourth-largest economy just
got a bit riskier - and a bit more profitable.
News sources reported today that the
yield
on Spanish sovereign 10-year
bonds
hit 6.1 percent, putting pressure on a financially stressed
administration which is conducting
debt
auctions on Tuesday and Thursday. While Greece and Ireland have
drawn the majority of the attention devoted to the increasingly
systemic euro crisis, Spain and Italy pose the biggest threat
to the stability of the economic zone and the common
currency
.
With a combined gross domestic product of about $3.5 trillion, the
southern European nations are simply too large to bail out in the
same fashion as Greece - and even in the Aegean, the rescue efforts
proved fairly ineffective at stopping economic and political
breakdown.
The
Financial Times
wrote that while the European Central Bank's emergency lending
efforts helped stabilize debt markets and prevent a critical
liquidity crunch in both nations, "the effects of the LTRO now
appear to be wearing off, with analysts continuing to stress it
merely bought time but was not a fix for underlying structural
problems in the region's banks and economies."
A sputtering economic engine
In an interview with the national newspaper El Mundo, Spanish
Economic Minister Luis de Guindos
said
, "At the moment I see a first quarter with a similar pattern to
the last quarter of last year," effectively admitting that the
economy was headed into a
recession
.
The conservative government's minister also emphasized its
commitment to
budget
cuts and not increasing
taxes
, stating that the government was elected on that promise and will
maintain it.
The outlines of the Spanish financial crisis may appear
depressingly familiar to many American investors and consumers - a
flood of low-
interest
borrowing stimulated a massive speculative property boom not backed
by real
investment
in more productive sectors of the economy. One of the key
differences lies in Spain's lack of monetary independence - while
the U.S. can and did shore up its economy through the Federal
Reserve's policy of quantitative easing, Spain remains tied to the
relatively pricey euro and thus struggles to compete on a global
footing.
Unemployment in Spain now totals 4.75 million individuals, a rate
of 23.6 percent as of February 2012. Here's another, even more
alarming statistic: Just over half (50.5 percent) of Spanish
under-25s are now unemployed, a figure that will only grow if
the economy continues to stutter.
Nevertheless, European
equity
indexes
rose
today, boosted by positive news of increased corporate takeover
activity and potential good news from the U.S.