Spain is becoming caught in a downward spiral that will make it increasingly expensive and more difficult for the country to have access to the credit and funding it needs to remain viable. Moody’s is on the verge of downgrading Spain’s debt to junk status. And the country’s prime minister stated Wednesday, June 27 that the country would not be able to sustain the record high borrowing costs for very long.
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Prime Minister Mariano Rajoy is fearful his country will soon have no access to the credit markets and he is urging the creation of a unified banking and fiscal mechanism to ensure that Spain and other distressed countries will be able to access the financial support they need to avoid falling into severe recession.
He points to the European Central Bank as only viable institution to provide such stability and liquidity and asked for clarity and strong support for continuation of the euro. Bonds issued by Spanish banks are currently the bottom performers of all Eurozone financial entities.
Yield premiums spiked to 648 basis points in a recent auction. In March, yield premiums were at 433 basis points. On Tuesday, June 26, Moody’s cut over a dozen banks to junk status and reserved room for further cuts. The projection is that the country itself will require a bailout, not just its financial institutions.
European authorities are scheduled to meet at a summit on June 28 and 29 to try to address the increasingly critical concerns of distressed Eurozone member countries.