Spain 'will not need full bailout'

Euro coin over Spanish flagSpain's finance minister has insisted again that the country does not need a full-blown bailout, even as the country's sky-high borrowing costs remained at dangerous levels.

The interest rate, or yield, on the Spanish benchmark 10-year bond fell 22 basis points to 6.78%, below the 7% level it has been hovering above since Monday.
Such high rates are considered by market-watchers to be unsustainable over the long-term rate and eventually forced Greece, Ireland and Portugal to ask for international financial help.

But Finance Minister Cristobal Montoro told Parliament that Spain will not need the same kind of assistance "because it does not need to be rescued".

However, after years of insisting its banks were among the healthiest in Europe, Spain recently acknowledged it will need a rescue package to protect the sector from a property boom that went bust in 2008.

But investors are now more concerned that the country itself may have to be bailed out and this could seriously test the strength of the entire European Union's finances.

Worries about Spain's ability to repay its debt grew last week when the country agreed to accept a eurozone loan of up to 100 billion euros (£80.5 billion) to shore up its ailing banks, which are sitting on massive amounts of soured property investments.

The big fear is that, as the money will count as a loan and raise Spain's overall debt load, the country's financing costs will suffocate the government as it tries to wade its way through a recession and a 24.4% jobless rate.

Because the government is ultimately responsible for repaying the banks' bailout money, the deal has increased fears about the size of public debt. If the government cannot get the bailout money back from the banks, it will be saddled with the losses.

Those losses could prove too much to handle for the government, which is already struggling with a second recession in three years and unemployment of nearly 25%, the highest jobless rate among the 17 nations that use the euro.
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