Eurozone risk grows as Spanish yields top 6 percent

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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.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: News Headlines , Bonds , Economy , International

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Daniel Pereira


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