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Spanish debt costs becoming too hot to handle

Spanish debt costs becoming too hot to handle
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The rocketing price Spain has to pay to borrow money has prompted investors to believe it will become the fourth euro zone country to need an injection of outside funds to survive.

Just over a week ago, Spain said it would ask for up to 100-billion euros to prop up its banking system.

Even that has failed to stop the seemingly inexorable climb in the cost of borrowing.

Over the last week, rates on ten year Spanish debt have leapt from just over six per cent to significantly more than seven per cent, a level many analysts say will only allow Spain to finance itself for a few months.

Worries about Greece are not helping either.

Trading analyst Pedro Zamora said: “We think the bomb has still not exploded in Greece. We think it is going to be very difficult to form a coalition. So we expect Spain’s and other peripheral countries’ risk premiums to be under stress again, the same way the markets will still be tense. The ball is with Europe and its politicians. It is for them to make the right medium- and long-term decisions.”

Spanish banks remain in a dire state. Official figures show that their bad debts now account for the highest proportion of their outstanding portfolios for more than 18 years.

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