Spain's Borrowing Costs Diminish But Its Economic Minister Cautions Against Too Much Optimism

Tuesday, July 17, 2012 08:27
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Spain's Borrowing Costs Diminish But Its Economic Minister Cautions Against Too Much Optimism

Tags: European crisis | European zone | world economy

The cost of borrowing has declined significantly for Spain, indicating the new austerity package announced by its government has successfully restored confidence to investors, at least for now. Its central bank also has a new chief—Luis MarĂ­a Linde—who has explicitly said that banks without no future viability will have to be closed.

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But Spain’s economic minister—Luis de Guindos—admonished investors to be cautious and not to become overly optimistic. He pointed to the Eurozone’s slow and complex decision-making process, a process that is continuing to inject uncertainty into global markets because of its seeming inability to address structural issues of distressed Eurozone countries.
 
Although borrowing costs remain high for the country, this week’s auctions brought yields much lower than last month’s. There is still fear among the country’s creditors that a bailout will be necessary. A notable development is the observation that each country—Spain, France, and Italy—are buying debt within its own borders with few foreign investors coming in.
 
The fear is that other countries could be lining up facing similar problems, increasing the amount of funds Europe will need to resolve its sovereign debt issues.

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