Italy must step up efforts to curb its colossal debt and revive growth to reverse negative investor sentiment that threatens to push it to the brink, despite a reform drive and a banking system sounder than Spain's.
By Chris Ciovacco: The bank bailout in Spain will add debt to the government's books, which makes already unattractive Spanish debt less attractive. The loans for the bank bailout have seniority over Spanish bondholders, also making Spanish bonds less attractive to new buyers.
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Anyone who wants to get an inside look at both the European banking system and the politicians in charge of fixing it need to only look at Spain’s Bankia. Bankia was formed in December 2010 by merging seven totally bankrupt Spanish cajas (regional banks that were unregulated). The bank was heralded as a success story and an indication that European Governments could manage the risks in their banking systems.
Total chaos reigns in European banking stocks this morning as Monte Paschi shares crash, soar, and plunge amid on-again, off-again bail-in, bail-out headlines (and stocks and bonds hit record lows). However, Italy is now not alone as Spanish banks are also bloodbathing following a European Court ruling on mortgage fraud went against them.
In the too stupid to make up category, Rajoy defends ‘victory’ for EU credibility
Mariano Rajoy, the embattled Spanish prime minister, has defended the eurozone’s €100bn bailout for Spanish banks as a victory for European credibility.
The ECB stepped into the fray once again today but the the results of the Spanish debt auction today speak for themselves. The rate on 10-year bonds is close to touching the 7% mark.
The BBC reports on the "Dreadful Result"
The Spanish government sold 3.56bn euros (£3.04bn; $4.79bn) worth of bonds out of a maximum target of 4bn euros.
The auction attracted bids worth 1.5 times the securities offered. The so-called bid-to-cover ratio was down from 1.8 in October.
The Bank of Spain estimated Friday that the economy shrank by 0.1 percent in 2010, a better performance than expected after an expansion in the final quarter.Spain is fighting to revive its economy, Europe's fifth-largest, and convince nervous investors that it will grow enough to bring its massive public deficit under control without resorting to a Greek or Irish style bailout.The Spanish economy shrank by 3.7 percent in 2009 following the collapse of a credit-fueled property boom that had been the driver of growth for over a decade.
European stock markets struggled on Monday, with investor sentiment hit by renewed eurozone debt concerns following the weekend bailout of Spanish bank CajaSur, dealers said.In morning trade, London rose by just 0.05 percent, Paris shed 0.51 percent, Frankfurt fell by 0.52 percent and Madrid by 0.79 percent."Investors remained nervous in the opening trading session to the week, with eurozone sovereign debt concerns still weighing on sentiment and keeping a leash on small market gains," said analyst Giles Watts at City Index.