The European Union said Thursday it was
ready to help Spain recapitalize its banks, as the country suffered
another credit ratings downgrade but managed a successful bond
auction, albeit at higher interest rates.
"If Spain needs help, it will have support," Luxembourg Prime
Minister Jean-Claude Juncker, who also chairs the Eurogroup panel of
eurozone finance ministers, said in Brussels.
But EU officials insist that aid will only be made available after
external audits clarify how much money Spanish banks need. Their
verdict is expected by the end of the month, while the International
Monetary is to give its assessment on Monday.
In London after markets closed Thursday, the Fitch credit ratings
agency said Spanish lenders will need at least 60 billion euros (76
billion dollars), twice as much as it had previously estimated.
As a result, it downgraded Spain's status by three notches, from A
to BBB, leaving the country just one step away from a "non-investment
grade."
The cost of bank restructurings may even rise to 100 billion euros
"in a more severe stress scenario," Fitch said.
The same figure was mentioned by Antonio Lopez-Isturiz, a member
of the European Parliament for Spain's centre-right opposition and
general secretary of the conservative European Peoples' Party (EPP).
Fitch said that Spain was "especially vulnerable to contagion from
the ongoing crisis in Greece," and its limited "ability to intervene
decisively in the restructuring of the banking sector ... has
increased the likelihood of external financial support."
In late April, Madrid had already been downgraded two steps, from
A to BBB+, by another credit ratings agency, Standard & Poor's.
Earlier Thursday, the country managed to raise 2.07 billion euros
(2.6 billion dollars) from three bond auctions, with the 10-year
benchmark bond more than three times oversubscribed.
However, Spain had to pay an interest rate of 6.12 per cent for
the 10-year bond, up from the 5.74 percent it managed to offer in
April, but below the record 7.09 percent that had to be offered at
the height of the euro crisis in November.
Economists believe that yields above 6 percent are not
sustainable in the long-term.
Investors reacted positively to the Spanish bond sales, with the
Madrid Stock Exchange's key IBEX 35 index ending the trading day up
by more than 1 percent.
"We are in a real stress moment and we are going through crucial
weeks, both for the euro area and its single currency, and for the
European Union," Juncker said in Brussels, calling for decisions at
the EU summit in late June to strengthen the eurozone's setup.
German Chancellor Angela Merkel -- whose country is the E.U.'s
powerbroker -- told ARD public television that the bloc needs "a
so-called fiscal union, that is to say, more budget policy making
together," and more transfers of sovereignty to Brussels.
In Washington, Federal Reserve (FED) Chairman Ben Bernanke told
Congress that the crisis in Europe was a danger to the United States
economy.
"The situation in Europe poses significant risks to the U.S.
financial system and economy and must be monitored closely," he said.
Bernanke noted that the crisis in Europe had hurt U.S. exports, put
pressure on US markets and financial institutions, and undermined the
confidence of both U.S. consumers and producers.
The FED has "taken steps to make sure we're as well prepared as
possible ... (and) stands ready to do whatever is necessary to
protect our financial system," Bernanke told lawmakers.
