Spain on brink of full sovereign bailout

Spain's economy minister Luis de Guindos
Spain’s economy minister Luis de Guindos

Spain’s minister for the economy, Luis de Guindos, travels to Berlin today for talks with German finance minister Wolfgang Schaeuble, at a time when Spain’s borrowing costs are spiralling out of control and the prospect of a full sovereign bailout seems ever more likely.

The visit comes after Spanish stocks fell sharply on Monday following rumours that a number of regional governments are poised to ask Madrid for financial support. On Friday Spain’s IBEX index fell by almost 6% after Valencia announced it would seek financial support from the central government.

Spain’s regions need to refinance 36 billion euros worth of debt this year, after being locked out of the international debt markets by the euro zone debt crisis and rising borrowing costs. Earlier this month the central government announced that it had set up a fund of 18 billion euros to help its ailing regional governments.

A German spokeswoman said that the ministers would be discussing the current situation in Spain and would not be talking about a broader bailout for Spain.

“We believe that the reforms already begun by Spain will help calm the markets,” she said, adding that financing problems reported by Spain’s regions had “nothing to do with” an agreement to bail out Spain’s banks.

At the same time ratings agency Moody’s has downgraded its outlooks for the AAA-rated economies of Germany, the Netherlands and Luxembourg, citing the “rising uncertainty regarding the outcome of the euro area debt crisis”.

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