Germany stood squarely behind Spain and its reform and austerity programme on Tuesday evening, issuing a joint statement condemning high interest rates demanded for the sale of Spanish bonds.
Within hours, Spain’s finance minister headed for France as all three countries sought to calm the soaring tension in the eurozone. They hoped to reassure investors that Madrid is not about to ask for a full international bailout.
Record high yields on both Spain’s 10-year bonds and now its short-term borrowing, plus the news that some of its regions, including the wealthiest Catalonia, will need funds from a cash-strapped central government, all point to a credibility gap between Madrid and the markets.
If a bailout is not being considered there is growing alarm over other options.
Professor Rafael Pampillon from Madrid’s Business school explained: “If the European Central Bank does not take action and if there is no rescue for Spain, our last option would be the break down of the euro and that would bring unpredictable consequences. It would be disastrous for the Spanish and European economies and could cause a meltdown for the global economy.”
Credit ratings agency Moody’s continues to be a messenger of gloom. After giving a negative outlook to Germany, which is the economy increasingly asked to bank-roll the eurozone, it has now done the same to the EU’s financial stability fund.