Spain struggles to find lenders, despite high interest rates

By Michael Birnbaum,
Washington Post
November 17, 2011

MADRID — As Europe’s debt crisis escalates, investor fears are also rising, making it increasingly difficult for some countries to raise money to pay their bills. That dying demand, despite the record-high interest rates they are being forced to pay, is raising concern that those nations could face a credit freeze similar to the one that brought the world’s economy to its knees in 2008.

Spain is the latest country to try to borrow, only to find few takers. In an auction of its bonds on Thursday, Spain fell $600 million short of its goal. Demand was the lowest since the depths of the 2008 recession — even though the nation’s bonds are paying the highest interest rates since it joined the euro more than a decade ago. An earlier auction this week also raised less money than the nation had hoped.

The situation in Spain raised new alarms about the European debt crisis and helped drive U.S. stocks lower Thursday. By mid-afternoon, the Dow Jones industrial average and the Standard & Poor’s 500-stock index were down nearly 2 percent, and the tech-heavy Nasdaq was off more than 2.2 percent.

The lack of willing lenders could send countries into bankruptcy faster than the high interest rates alone, analysts say, because countries can typically withstand a temporary spike in borrowing costs. But if they can’t find anyone to lend to them at any price, that’s a sign of more dire straits, because unlike most countries that can print money in an emergency, they have no lender of last resort.

Fewer investors lining up for Spanish bonds “is worrying,” said Ben May, an economist at Capital Economics. “That does suggest that even though the government is paying out a quite high interest rate, there’s still limited demand,” though he noted that the timing of when Spain’s big debts come due means it can probably hold out against the market for months.

An election Sunday will likely bring a tidal wave of support for a new conservative Spanish government that analysts expect will impose economic reforms — so long as worries in the rest of the euro zone don’t sweep across its border first.

Germany and France, the countries at Europe’s core, have been having an increasingly public debate over whether to have the European Central Bank guarantee that it would buy the debt of troubled euro zone countries — thus cutting the liquidity risk that countries like Spain are trying to contain.

France, facing a spike in borrowing costs despite being one of the euro zone’s two heavyweights, desperately wants to give the central bank sweeping new powers to intervene in the crisis.

“We consider that the best way to avoid contagion is to have a solid firewall” provided by the bank, said French Finance Minister Francois Baroin in a speech in Paris late Wednesday, Bloomberg reported. “We haven’t won the argument.”

In Germany, where deep fears of inflation have prompted more fiscal conservatism than in neighboring countries, Chancellor Angela Merkel held firm in a speech Thursday against the rising demands from the rest of Europe. Condemning Europe’s focus on “one quick solution after another,” Merkel said that if the bank were to step in now, it would provide short-term calm at the expense of long-term competitiveness, the Associated Press reported.

She even went so far as to compare the prospect of central bank intervention to her native communist East Germany, saying that when the Iron Curtain fell in 1990, she “saw the chance . . . to switch to more competitive surroundings — which I’ve found good for 21 years now.”

  1. #1 by yhsiew on Saturday, 19 November 2011 - 12:46 am

    It makes one worry how much our government has borrowed to make growth sustained at 5.8pc in Q3 and whether such borrowing is sustainable in the long run.

    Would we end up like any of the economically troubled European countries if government borrowing continues unabated?

  2. #2 by monsterball on Saturday, 19 November 2011 - 4:02 am

    Mahathir was smart to avoid borrowing from outside investment arms.
    He prefers to use our oil and EPF money….both belong to the country and the make billions for chosen ones…sons and party.
    That way..the country can go bankrupt but owe to no foreigners.
    That’s why…up to today..he feels no shame at all..being so confident that the Muslims approve all his corruptions.
    USA is financially not strong too…but have lots of military power influence,
    US cannot afford to let France Germany and Spain go bankrupt……….unless the signs are showing a change of leaderships by the three will show some recovers and willing buyers to their bonds.
    If the signs are really bad..Obama will surely .step in and ask few filthy rich oil Muslim countries to help or be prepared for World War 3.

  3. #3 by k1980 on Saturday, 19 November 2011 - 10:09 am

    Actuall y there is one very simple ( but painful ) way for Europe to get out of its financial crisis. Just pay the European workers wages that are lower than that of Bangladesh’s.

    In 10 seconds, all the jobs (2 billion?) from Bangladesh, India, China, Cambodia, even from East Timor, would all flow into Spain, Greece, Italy, ect.

  4. #4 by limkamput on Saturday, 19 November 2011 - 12:01 pm

    Some idiotic mainstream economists will say the problem Europe faces today is that their debts are too high and the interest rates too prohibitive. Wake up, Europe’s problem is they sunbath too much, do nothing all days other than eating, drinking, ipading and iphoning and watching sports. They do not know how and where their good life has come from and they think it is their divine right to enjoy good life forever and without working for it. Both the people and their moronic governments think that way – borrowing money to spend on endless welfare and good life. Asians, on the other hand, are competing on how to export more to the beggars who can no long afford to pay. This is the problem the world face today – no but, no if, no perhaps and not too simplistic. We are all too hypocritical and political correct to say things that hurt.

  5. #5 by Jeffrey on Saturday, 19 November 2011 - 1:26 pm

    ///But if they can’t find anyone to lend to them at any price, that’s a sign of more dire straits, because unlike most countries that can print money in an emergency, they have no lender of last resort.///

    In a mad mad world the sane finds it hard to prevail. Merkel tries to be sane. Spain like Greece/Italy (tourists havens) not competitive but they joined EU and Euro even if they don’t meet ‘Maastricht Criteria’! How? European Central Bank (ECB) is not US Federal Reserve. The treaties governing ECB are not same as Federal Reserve that advances US Capitalist interest. ECB is supposedly independent, committed to combat inflation. Though can “print money” (which is just accounting entries of reserves versus treasury bonds/notes). ECB is limited lender of last resort. If it purchases more Spanish bonds to bail out it injects liquidity into the zone causing inflation if supply of goods/services cannot match excess liquidity and national interest of richer & more competitive country like Germany will hurt. Why bail out the lazy buggers downsouth? Esp when after first round of bailout via bond purchase – crossing the policy rubicon of ECB – has not convinced markets and give ECB’s balance sheet a hit! But whatever you can’t shield from inflationary if other countries with reserve currencies like US Japan keep selfishly printing to drive up prices! If Spain caves, France next?

  6. #6 by k1980 on Saturday, 19 November 2011 - 2:17 pm

    Spain should appoint Mohd Nazifuddin Najib as its new Finance Minister. Then all its shares will soar up by 535% in 2 weeks! Financial crisis solved!

  7. #7 by Jeffrey on Saturday, 19 November 2011 - 3:51 pm

    I don’t understand much of this world macroeconomic turmoil – leading to Eurozone debt and Greece, Italy Spain- but sense that maybe a lot is traceable ultimately to Uncle Sam’s hegemony/greed and the world financial system that it as massaged, exploited and brought to present stage. It dominates, holds in hostage, bullshits and impoverishes many in rest of the world by the vaunted Greenback that it prints and floods the world to finance its deficit and spending. First it boasted of Greenback backed by Fort Knox’s gold. Then in 1913 the Federal Reserve started to issue paper notes that were only 40% backed by gold while claiming they were fully convertible. When emerging victor of World War II and architect of new world order, it started UN, IMF and imposed its will on rest by Bretton Woods that requires each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar and the ability of the IMF to bridge temporary imbalances of payments. In 1971, the US unilaterally terminated convertibility of the dollar to gold and Greenback has been backed by nothing but the promise of US govt. Nothing but Congress’s ceiling now stops Federal reserves from just printing to finance its debt and spending. Ex Fed Chairman Alan Greenspan has the nerve to say “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default”. They are abusing their Reserve Currency (RC) to the hilt.

  8. #8 by limkamput on Saturday, 19 November 2011 - 7:45 pm

    Sage, you forget about the stupidity of East Asians – you know the great civilization people who just know how to exploit their own people and let others enjoying the good life while they accumulate these worthless papers.

  9. #9 by Jeffrey on Saturday, 19 November 2011 - 11:42 pm

    Selfish maybe, don’t know about ‘stupidity’ part. China in May this year has taken the lead by example to reduce its over a trillion US Treasury securities replacing with gold. (China itself has surpassed South Africa in producing gold). That was way before Aug S&P’s downgrade of US triple A debt rating. It isn’t because of stupidity China has accumulated heaps of such papers. Firstly it’s an international monetary system that US, as victor of 2nd world war, could impose its reserve currency status (CRS) on the world at large – and not just ‘stupid’ China –through sheer industrial and military power. After de-linking Greenback from Gold in 1971 the US went all out to control “black gold” – oil to preserve that CRS status by pressuring all to accept billing of Oil in US$, stationing Marines in fundamentalist Saudi Arabia to support corrupt House of Saud, control Panama & Suez canals through which oil tankers traverse, evicted Afghanistan’s Taliban to protect oil pipeline, even put down Saddam under pretext of non existent WMD if he’s perceived threat by CIA to Saudi or Kuwait.

  10. #10 by Jeffrey on Saturday, 19 November 2011 - 11:53 pm

    Besides Pax Americana imposed in aftermath of US victory in World War II which led in part to Greenback’s reserve currency status from oil transactions billed in US$ (that China could nothing about), for last 15 yrs at least when China opened up her economy, Chinese investment in US government bonds has allowed lower interest rates for Americans to buy Chinese products based on a US$273.1billion trade. Now of course they are not stupid to just dump treasury securities overnight without hurting themselves if US$ depreciates, depreciating their holdings of US assets. They are going for soft landing by slowly selling the holdings substituting for gold that china itself has reserves. It’s the other East asian Japan tat has of late been buying US papers. Longer run China is the one with economic clout to challenge ponzi scheme by US Federal Reserves by asserting Yuan’s primacy as Reserve Currency or IMF’s Special drawing Rights to substitute.

  11. #11 by Jeffrey on Sunday, 20 November 2011 - 12:05 am

    (Continuing) Of course before China could make Yuan the Reserve Currency it has first to make it convertible for trading on international markets, which it intends by 2015. This is to challenge US Federal Reserve’s scam of creating unlimited money out of debt. To add insult to injury not even by the printing press printing actual greenback but by simple expedience of electronic account entries, debit & credit of reserves swapping for treasuries ! Look at composition of Federal Reserve and who’s in it and the capitalist interests it represents and you’d know the implications of how the Federal reserve could engineer for Americans to consume, nay even force them to consume beyond their means to serve US capitalistic interests & corporate profits.

  12. #12 by limkamput on Sunday, 20 November 2011 - 11:45 am

    Sage, all these you said still failed to explain why East Asian countries would not allow their own citizens to consume more. They work their butt out, and yet they could hardly afford three meals on the table because their wages were suppressed and workers’ rights grossly abused (please don’t imagine for a minute the American or the European workers deserve more, that is pure stupidity). Just look at the deaths in the mining industry in certain country. I am sure these countries are big enough to generate their own demands and allowing their people to have a better life. Look, these are big countries unlike Singapore where their good life must inevitably depends on the external sector. These moronic East Asian countries, who routinely exploit their own workers, pay them miserable wages, have poor safety standards, and ignore environments just to accumulate reserve and preserve power among the oligarchs.

  13. #13 by Jeffrey on Sunday, 20 November 2011 - 1:08 pm

    Dunno the reasons, it also depends on case to case which East Asian Country one is talking there being considerable difference between China, Japan, Taiwan Koreas. Can only speculate what is ordinarily assumed aboutlow wages and minimal labor rights -partly a political tradition of authoritarianism without priority to rights recognition, industry policy geared to lowering costs to gain competitiveness it being assumed labor is not exactly qualitative in technological value chain to justify higher wages, protect infant industries which include industries owned by cronies, and a general fear by elites that organised labor rights, if not restricted, could lead to strikes and political activities of unions. In China case it is ironic that founded on Marxist principles of workers rights independent trade unions are forbidden & workers rampantly exploited. However China has implemented in 2008 some new labor laws requiring employers to pay overtime, provide insurance and give laid off workers one month of severance pay for every year worked which are estimated to increase 15-20% operational cost of what you would regard sweat factories.

  14. #14 by on cheng on Monday, 21 November 2011 - 8:58 pm

    Get your fact right ! someone, Germany is much stronger than useless USA financially (national finance), so to say USA wont let Germany go bankrupt is ignorant !!

  15. #15 by on cheng on Monday, 21 November 2011 - 9:02 pm

    Yes, China is stupid to hv accumulated so much US treasury debt, bond…

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