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Spain continues recapitalisation of banking system

Spain continues recapitalisation of banking system

(22 June 2012 – Europe) Spain is insisting there is no need for a full-blown bailout even though its borrowing costs hover near danger level and a vast rescue looms for its stricken banks. Fears mounted among investors that punitive borrowing rates could eventually topple the eurozone's fourth-largest economy, forcing an international rescue that would dwarf those mounted for Greece, Ireland and Portugal.

Spain's eurozone partners agreed on 9 June to lend up to €100 billion (A$126 billion) to save banks laden with bad loans extended during a real estate bubble that imploded in 2008.

The yield on Spanish benchmark 10-year government bonds shattered the 7.0 percent barrier on Monday for the first time since the creation of the euro in 1999, pushing above 7.2 percent.

By late afternoon Wednesday, the yield had relaxed a little to just over 6.8 percent, still a rate regarded as unsustainable over the longer term.

Spain managed to raise €3.04 billion in an auction of 12 and 18-month notes on Tuesday but it had to pay sharply higher borrowing rates of more than five percent a year.

Spain's budget minister hailed a Group of 20 summit in Mexico, where leaders issued a statement saying they welcomed both Spain's plan to recapitalize the banks and the eurozone's loan.

'Spain has, as we found out last night, the express support of the G20 for the programmes the Spanish government is pursuing, among them the recapitalization of the banking sector,' Montoro said.

'What we have to send to the Spanish people is a message of confidence, of calm, of security,' he said.
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