Has Spain's Lehman Weekend Arrived?
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Reports out of Reuters Friday have everyone prepping for a weekend deal in the EU that will save Spain's battered banks. Figures out of the IMF put the total amount of funds needed at $50 billion, but economists are now saying the cost of restructuring is closer to $75 to $100 billion.
With expectations running so high, risks are growing that another failure in the EU will completely decimate investor confidence. In a worse case scenario, investors will simply stop buying Spanish government bonds, and if that happens then Spain's troubles are just beginning.
On Thursday, Spain sold 2.074 billion euros ($2.59 billion) of government bonds, and although they could still borrow, yields were higher than the previous auction. The auction's success was predicated on the assumption that Spain will receive the funds needed to save its banks.
Today, Fitch cut its rating on Spain's debt to BBB, two short of 'junk' status. They also placed the country on negative outlook, citing contagion risks from the Greek crisis.
With expectations running so high, risks are growing that another failure in the EU will completely decimate investor confidence. In a worse case scenario, investors will simply stop buying Spanish government bonds, and if that happens then Spain's troubles are just beginning.
On Thursday, Spain sold 2.074 billion euros ($2.59 billion) of government bonds, and although they could still borrow, yields were higher than the previous auction. The auction's success was predicated on the assumption that Spain will receive the funds needed to save its banks.
Today, Fitch cut its rating on Spain's debt to BBB, two short of 'junk' status. They also placed the country on negative outlook, citing contagion risks from the Greek crisis.
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