Paulo Roberto de Almeida
By DAVID JOLLY
The International Herald Tribune, June 5, 2012
PARIS — Spain warned Tuesday that the moment was nearing when it would be unable to borrow in the bond market without help from its European partners, as Group of 7 finance and central bank officials held a teleconference to discuss the crisis in Europe.
“The risk premium says Spain doesn’t have the market door open,” Treasury Minister Cristóbal Montoro told Onda Cero radio, Reuters reported. “The risk premium says that as a state we have a problem in accessing markets, when we need to refinance our debt.”
The risk premium describes the extra interest rate that investors demand to hold Spanish debt, compared with German debt, which is considered the safest in the euro zone. Currently, Spain’s 10-year bonds yield about 6.3 percent, compared with Germany’s 1.2 percent; thus, the risk premium stands at about 5.1 percentage points.
Mr. Montoro said Spain needed help from European institutions to recapitalize, though he did not give an indication of how much money was required. Emilio Botín, the chairman of Banco Santander, said Tuesday that about 40 billion euros, or $50 billion, of European funds would be needed to fix Spain’s banking sector, Bloomberg News reported.
While Spain’s overall debt is not considered dangerously high, its economy and banks have been hammered by the collapse of a real estate bubble, and it trying to cut government spending to meet European targets even as the economy contracts, leaving the government little leeway to aid lenders.
Spain is planning a bond auction Thursday that could help to decide whether the country must seek a bailout from the European Union, the International Monetary Fund and the European Central Bank, as Portugal, Greece and Ireland have done.
Group of 7 officials spoke Tuesday morning, Washington time. The Kyodo News agency cited Finance Minister Jun Azumi of Japan as telling reporters that he had agreed with his G-7 counterparts to cooperate in addressing the European crisis. Mr. Azumi also said he expressed Japan’s concerns about the volatility of the yen, which is threatening to wreak havoc with Japan’s export-led economy.
The G-7 did not issue a statement after the emergency talks. Members of the group are Britain, Canada, France, Germany, Italy, Japan and the United States.
The Group of 20, which includes the G-7 as well as important emerging nations including Brazil, Russia, India and China, is scheduled to meet June 18-19 in Mexico. Greece will hold elections just a day earlier, on June 17, in a vote that is seen by some as a referendum on the struggling country’s continuing membership in the euro. Some economists fear that a rejection of pro-bailout parties by Greek voters could lead to chaos in the markets.
The euro zone continues to disappoint already low expectations of economic growth. Retail sales fell in April by 1.0 percent from March, Eurostat, the European Union statistical agency said Tuesday. From a year earlier, April retail sales fell by 2.5 percent in the euro area. That was far below the forecasts of economists polled by Reuters, who had expected a 0.1 percent monthly decline and and 1.1 percent annual decline.
A separate report showed German industrial orders sliding by 1.9 percent in April from March’s revised 3.2 percent increase, the Economy Ministry reported in Berlin. The lion’s share of the decline resulted from shrinking overseas orders. Orders fell 3.8 percent from a year earlier.
In European afternoon trading Tuesday, the Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 0.6 percent. London markets were closed for a second day for Queen Elizabeth II’s diamond jubilee celebration.
The dollar was higher against other major European currencies. The euro fell to $1.2444 from $1.2499 late Monday in New York, while the British pound fell to $1.5358 from $1.5384. The dollar rose to 0.9647 Swiss francs from 0.9609 francs, and to 78.62 yen from 78.34 yen.
Hiroko Tabuchi contributed from Tokyo.
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