Markets dive as Spain’s debts hit crisis point
Reforms: George Osborne will unveil plans for Britain’s banks in a key speech tonight
14 June 2012
The eurozone was hit by fresh turmoil today as Spain’s borrowing costs hit crisis levels.
Stock markets across the Continent fell as the figure Madrid must pay to service its debts rose above seven per cent, which is seen as unsustainable in the long term.
Greece, Ireland and Portugal all sought international bailouts after their debts rose above this psychologically important barrier.
Spain’s 10-year bond yield hit a euro-era high of 7.01 per cent after rating agency Moody’s downgraded its credit to within one notch of junk status.
Economy minister Luis de Guindos promised the government would take swift action to bring the premium down, admitting: “It is not a situation that can be maintained over time.”
London’s FTSE 100 was down 46 points by lunchtime, while Germany’s Dax suffered a similar fall and France’s CAC 40 fell by 0.6 per cent.
It was another sign that an £80 billion bank rescue has failed to convince investors that Madrid can deal with its financial problems. Some analysts see a full bailout as inevitable.
Attention will now turn to Italy, where borrowing costs also rose.
“It’s not a question of whether the crisis will get worse before it gets better, but rather it must get worse before it gets better,” said Richard McGuire, senior fixed income strategist at Rabobank International.
German Chancellor Angela Merkel warned world leaders not to “overestimate” her country’s ability to solve the crisis as Slovakia said it would demand Greece leaves the euro if it rejects austerity after Sunday’s re-run election.
Ahead of a meeting of G20 nations in Mexico this weekend, Mrs Merkel warned against “miracle solutions”.
In London, Chancellor George Osborne is to hail reform of Britain’s banking sector at his annual Mansion House speech this evening, saying: “We’ve got to stop problems here in the City of London spilling onto our high streets and putting taxpayers’ money at risk.”
A White Paper has confirmed that ministers will implement recommendations from Sir John Vickers’s Independent Commission on Banking. It will see ordinary banking “ring-fenced” from risky investment banking, give savers more protection if banks fail, force banks to bolster their balance sheets and make switching accounts easier.
In a foreword, Mr Osborne and Business Secretary Vince Cable said reform would safeguard the City’s place as the world’s leading financial centre.
Meanwhile, plans being put forward in the European Parliament would stop banks paying bonuses that are larger than salaries. However, it is feared this will increase fixed pay.