Financial markets on Tuesday stepped up pressure on
Spain after ratings agency Moody's downgraded its position on the
long-term debt and deposit ratings for 28 Spanish banks.
Spain sold $3.85 billion of government
bonds at rising interest rates. Three-month bonds fetched a yield of
2.5 percent, thrice as high as in the previous auction in May, while
the yield for six-month bonds nearly doubled to 3.4 percent.
Spanish banks suffered losses on the Madrid stock exchange. The
yield for Spanish 10-year bonds went up to 6.69 from 6.61 percent,
with the risk premium measuring the difference between German and
Spanish bonds rose slightly to 518 basis points.
Moody's overnight downgraded 28 Spanish banks by one to four
notches, some of them to speculative level, citing Spain's reduced
creditworthiness and the banks' exposure to a real estate crash.
The downgrade came just hours after Spain had applied for a
eurozone rescue for its banks. The eurozone has pledged up to 100
billion euros, though independent auditors put the need at a maximum
of 62 billion euros.
Markets were maintaining "exaggerated" pressure on Spanish debt
and on its banks, European Competition Commissioner Joaquin Almunia
said in the northern city of Santander. He expressed confidence that
the situation would calm down once the details of the bank rescue
became known.
Banks receiving aid will have to present restructuring plans and
may need to shed problematic assets, Economy Minister Luis de Guindos
said. The government has already ordered banks to place toxic real
estate assets in liquidation societies.
De Guindos said the eurozone would only set conditions for banks,
though the European authorities will also continue
"supervising" Spain's economic and fiscal policy, aimed at trimming
the 8.9-percent budget deficit.
Eurozone leaders will pressure Spain to: raise value-added tax;
raise retirement age earlier than planned; and cede to Brussels some
of the powers of the Bank of Spain and of the stock market watchdog
CNMV, the daily El Pais reported.
