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Berlin Crisis Talks further Spanish Crisis

Although the Spanish Treasury did sell bonds worth 3 billion euro’s, positive news for the nation is in short supply. For the first six months of 2012, with market conditions less taxing, Spain managed to secure over half of its annual debt needs. However, with needs for the latter half of the year exploding any advantage secured by the nation through this financial cushion has long since vanished.

Last Friday the government announced that the Spanish economy was likely to remain in recession far into next year, and as this week progresses the situation continues to deteriorate. It is now feared that Spain’s borrowing costs have reached such a level that they will soon become unmanageable.

Yesterday, after Valencia declared its intention of tapping the aid fund, Spain’s biggest and most indebted regional economy, Catalonia, intimated that it too would soon need financial support.

Several hours later, crisis talks in Berlin led to a surge in Spanish borrowing costs. During the talks a statement was released which asserted that bond yields were not indicative of the strength of Spain’s economy.

It now seems unlikely that the euro-zone’s rescue funds and the banking bailout will halt or counteract the frightening escalation of Spain’s debt costs. Confidence in the euro-zone is being shaken once again as belief that the nation will soon need a sovereign bailout continue to grow.

Whilst praising the efforts made by Spain to cut their deficit German Finance Minister Wolfgang Schaeuble and Spanish Economy Minister Luis de Guindos last night stated that: ‘The current levels of interest rates on sovereign debt markets don’t correspond to the fundamentals of the Spanish economy’.  They also commented on the sustainability of Spanish debt, and expressed that decisions made at the last European Union summit (such as the setting up of a banking union with a single European supervisor) must be rapidly implemented.

The Spanish situation, in conjunction with continuing uncertainty in Greece and the decision of Moody’s investors Service to cut the outlooks of Germany, the Netherland’s and Luxembourg to negative, has kept the common currency struggling. Yesterday the Euro dropped below £0.78 for a second day.

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