The market data on Spain this afternoon suggests that the bailout sticking plaster agreed earlier by eurozone finance ministers wasn’t big enough to cover the wound even for a few hours.
Ministers have signed off on the deal to lend Spain €100 billion to recapitalise the country’s banks, but the IBEX is down 5.8 per cent – its biggest one day drop for two years – and Spanish 10-year bond yields have crept further into the danger zone, and are now at 7.28 per cent. Markets were unsettled by Valencia’s announcement that it would need to apply for financial help from the Spanish government. The region is heavily indebted, and needs to repay €2.85 billion of debt by the close of this year.
The fear now is that Spain really will need a proper bailout, which will be far, far more costly than the deal agreed today. There is still no appetite for the break-up of the single currency, though. Benoît Cœuré, a member of the European Central Bank’s executive board, gave a speech in Mexico City this afternoon in which he said:
‘I would caution those who have doubts about the euro, that they underestimate the political commitment to it at their own risk.’