((Image Source: Bloomberg) BY MATTHEW PICHT 7 percent. That’s the number that has Spanish
investors clenching their fists and European analysts shaking their heads this week. It’s
a record high for Spain’s debt, a new low for the country’s economy, and a little
sign of big trouble ahead. The BBC explains… “Lenders are now demanding an interest rate,
a yield, of seven–just over seven percent for ten years bonds, ten year debt. A level
which many believe is too expensive, and certainly unsustainable.” The dark news follows a drastic downgrade
by Moody’s rating agency, which has cut Spanish bond ratings to one level above junk.
In their report, Moody’s cited the recent 100 billion euro bank bailout as evidence
of the country’s economic weakness. Spain’s bond interest has been rising steadily
all week, but seven percent is the highest it’s ever been since the country adopted the
Euro. An analyst told Bloomberg, the yield spike represents a fundamental mistrust in
Spain’s recovery ability. “The debt markets are telling us that they’re
unconvinced by the bank bailout, and that the next step is that the government will
have to concede, capitulate, and go for a sovereign loan.” A 7 percent bond yield level is typically
the first sign to analysts a country might need financial aid on a national scale. Many
investors are worrying Spain’s economy will require another bailout, on top of the banking
one to keep it afloat. Sky News says, a second bailout would stretch the Spanish debt burden
to its limits. “You’ve just had a bailout for the banking
system, and you may now need a bailout for the wider economy to actually keep it going.
And so, really one woe upon another is being piled on for Spain.”
And Spain’s woes aren’t staying in Spain: the contagion may be spreading to Italy. MarketWatch
notes, the Italian bond auction is having similar troubles. “We’re talking about interest rates that
are in very rough terms a percentage point higher than they were before. So we’re seeing
Italian bond yields now reach levels that most people would say are unsustainable.”