Spain has been punished with record borrowing costs in the wake of a rating cut that deemed its ability to pay down its debt just above junk status. Fears that Madrid would need a full-scale bailout have soared.
Spain's economy minister appealed for calm after the interest rate on the country's benchmark 10-year bonds rose to a record 6.96 percent in trading on Thursday, the highest level since the country joined the euro.
"We are living in a period of volatility, a tense situation," Economy Minister Luis de Guindos told reporters in Madrid. "This week is a difficult week before the Greek elections and obviously the government is aware of the situation," he said, referring to Sunday's poll in which a victory by anti-austerity parties could further destabilize markets nervous that Greece could subsequently leave the euro.
"But in these circumstances the government wants to send a message of calm, a message that we know absolutely that we have the support of all our partners," de Guindos said.
Near junk status
Late on Wednesday New York-based Moody's downgraded the Spanish government's credit rating by three points, leaving it just one level above junk-grade status. The agency said that Spain's growing borrowing problems were the primary reason for the downgrade from A3 to Baa3.
It also highlighted an EU loan to Madrid, which it said would increase the country's debt burden. European leaders had announced the 100-billion-euro ($125.64 billion) loan to help Spain resolve its banking crisis on Sunday.
"While the details of the support package have yet to be announced, it is clear that the responsibility for supporting Spanish banks rests with the Spanish government," Moody's said in a note.
The agency said it expected Spain's public debt ratio to rise to some 90 percent of its gross domestic product this year - and to keep increasing until the middle of the decade.
ncy/slk (AP, AFP)