STOCK MARKET WATCH -- Monday, 9 July 2012

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26. Eurozone bailout deals under pressure as Spain's cost of borrowing rises

http://www.guardian.co.uk/business/2012/jul/09/eurozone-bailout-deal-spain-borrowing



Mariano Rajoy, Spain's prime minister, has only enjoyed a short respite following an EU summit deal. Photograph: Europa Press via Getty Images


Eurozone governments' hopes of putting off any hard decisions on bailouts until after the summer holidays came under strong pressure today as Spain's cost of borrowing broke through the 7% threshold despite provisional agreement on €100bn in European rescue funds.

The Eurogroup, finance ministers from the 17 single currency countries plus officials from the European Commission, meet in Brussels on Monday evening to try to put flesh on the bones of an EU summit deal, hailed as a breakthrough at the time, 10 days ago that brought only a short respite for the embattled Spanish prime minister, Mariano Rajoy.

The summit resolved to break the invidious link between failing banks and weak sovereigns by agreeing to use eurozone bailout funds to recapitalise banks directly and not via governments, to avoid pushing up debt levels. But since the summit, creditor eurozone governments have backtracked on the pledges amid furious debate and rancour over what was actually agreed and how the accord will be implemented.

While the Germans and other north Europeans insist that direct bank injections can only be contemplated once a new regime of eurozone banking supervision is in place (likely to take a year), senior Eurogroup officials signalled that even in the event of bailout funds going straight to banks, the host country would still be burdened.