Spanish borrowing costs surge on bank rescue fears

The Telegraph ^ | 5/14/2012 | Fiona Govan, Madrid

[bruinbirdman]

Spanish borrowing costs rose to their highest level over Germany's since the euro was launched, amid fears the country's latest bank rescue plan is inadequate.

The yield on Spanish benchmark 10-year bonds hit 6.3pc, plunging further into the danger zone as traders worried that the €30bn (£23.9bn) bank recapitalisation plan unveiled by Madrid on Friday is still not enough.

Traders instead sought safety in German government debt, yields of which fell to the lowest-ever level. The spread between German and Spanish borrowing costs hit a record 486 basis points.

Spain’s government is poised to intervene in the finances of some of its autonomous regions as it struggles to meet strict deficit reduction targets imposed by Brussels.

Shares in Bankia, Spain’s fourth largest savings bank which was part-nationalised last week, slumped to half the value of their listing price last year and Spanish savers rushed to remove deposits from the stricken lender.

The Spanish government, which is due to approve the spending plans of its 17 autonomous regions later this week, may have to take control of spending in the communities of Asturias in the north and Andalusia in the south after their austerity budgets were not deemed to go far enough.

Reining in spending by Spain’s regional governments is considered key in reducing the nation’s public deficit to 5.3pc this year down from 8.5pc in 2011.

”The banking reform was well received and supported by all authorities - EU, IMF and the World bank,” Spanish foreign minister Jose Manuel Garcia Margallo said ahead of the eurozone finance ministers' meeting in Brussels this afternoon.

“The problem is that we are faced with major uncertainty in certain

[JCBreckenridge]

So it begins. Only 70 points from where they will be crushed.