Spain's crisis flares again as AAA club scuppers bank rescue deal [View all]

[dkf]

Spain's debt crisis has returned with a vengeance after Germany, Holland and Finland reneged on a crucial summit deal and scuppered hopes of direct eurozone help for Spanish banks.

Yields on 10-year Spanish bonds punched back above the danger line of 6pc and spreads over German Bunds reached 450 basis points, intensifying pressure on Madrid as it continues to resist a sovereign bail-out.

The alliance of hardline creditors said the European Stability Mechanism (ESM) – or bail-out fund – could not be used to cover “legacy assets” from past banking crises, even after the eurozone’s banking supervisor starts work next year.

This prevents the ESM from recapitalising Spain’s crippled banks directly under a €100bn (£79bn) loan package agreed with Madrid in June. The burden will fall entirely on the Spanish state.

The Spanish newspaper Expansion said the AAA trio had “dynamited” the EU accord. The extra debt burden is likely to be around €60bn or 6pc of GDP, depending on bank stress tests to be unveiled on Friday. Pessimists fear it could rise to 15pc of GDP once full losses from the property crash are crystallised.

http://www.telegraph.co.uk/finance/financialcrisis/9569353/Spains-crisis-flares-again-as-AAA-club-scuppers-bank-rescue-deal.html