Instant view: Eurozone on verge of renewed crisis as Spain debt yields soar towards unsustainable levels

Greece, Ireland and Portugal all needed bailouts after debt yields crossed the 7 percent barrier

by The Commentator on 14 June 2012 06:37

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Yields on 10 year Spanish government bonds headed towards the 7.0 percent barrier on Thursday, raising fears of default in the Eurozone's fourth largest economy and of potentially devastating knock on effects on the Eurozone as a whole.

By early morning trading, the 10 year bond had hit 6.9 percent, according to data from Bloomberg.

In the context of recession, 7.0 percent is widely seen as an unsustainable level for a country to finance its debt. When Ireland, Portugal and Greece passed through that barrier they were forced to ask for a bailout.

However, Italy did survive a period in November last year when its 10 year debt yields surpassed 7.0 percent without seeking a bailout.

What may rattle markets, though, is that the rise in debt yields comes in the same week that Spain's banks were granted a 100 billion euro bailout-loan facility. The fact that that has not prevented yields from soaring suggests that the markets do not believe Spain will be able to repay its debts.

Markets are in any any case jittery ahead of Greek elections this weekend which could well see a new government that refuses to comply with austerity measures tied up with its bailout package.

That in turn could either force Greece out of the Eurozone or provoke potentially catastrophic capital flight from the Eurozone as a whole. Or, indeed, both events could occur simultaneously.

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