Spain has edged closer to becoming the largest country in the Eurozone in need of a full blown bailout as its borrowing costs rocket. Moody’s, the credit agency has also warned of a further bank rating downgrade.
Moody’s has said that it will publish its new ratings for the Spanish banks that have suffered due to a downgrade of the country’s sovereign bank debt to pitiful levels. The announcement by the agency came after the Spanish government were forced today high interest rates to sell short term debt.
Financial analysts have warned the situation is critical for Madrid and the Eurozone, even though the banking system received an £80billion lifeline. Fears are growing that Spain could be on the verge of being blocked from credit altogether.
European leaders are trying to come up with a new rescue package for the ailing single currency. Germany is considering allowing the use of the bailout funds to buy debt off of the struggling nations.
The German analysts have shown a drop in morale could show that the European Union’s paymasters could finally be feeling the strain. Juergen Michels, an economist at Citigroup said: ‘This is an indication that the worsening of the debt crisis, and the increasing tensions in Spain, are impacting Germany.’
Spain was forced to pay an interest rate of 5.07 per cent to sell 12-month debt which is up from 2.99 per cent a month ago and the highest level since the euro was launched in 1999.
The 10-year bond yield was also above 7 per cent which is a psychologically important level which turned out to be the point of no return for Greece, Ireland and Portugal.
Marc Ostwald, an analyst at Monument Securities, said Spanish borrowing costs at its latest debt auction were ‘prohibitively expensive’ and could lead to a full-blown bailout.