Pain in Spain as investors fear its debts

 
Tim Wallace
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THE EUROZONE crisis threatened to overwhelm Spain yesterday as the country’s borrowing costs reached euro-era highs, bringing closer the prospect of another sovereign bailout.

France too faced higher borrowing costs, as investors demanded a greater return to put money into any sovereigns perceived as potentially “at risk”.

The embattled Spanish government, which faces a general election this weekend, sold €3.6bn (£3.08bn) of 10-year bonds at a yield of 6.975 per cent, up from 5.986 per cent on similar bonds in July.

Greece, Ireland and Portugal had to seek bailouts after their borrowing costs reached seven per cent, a level widely viewed as unsustainable.

Yields fell back later, ending the day at 6.49 per cent. Analysts believe the European Central Bank stepped in to buy bonds and lower yields.

Further evidence that the crisis was spreading to core economies came with the spread of French 10-year bond yields over German bunds hitting a record high of 204 basis points.

France sold debt maturing in mid-2016 at yields of 2.82 per cent, representing a 0.5 percentage point jump from the 2.31 per cent paid in October when similar debt was issued.

However, finance minister Francois Baroin denied the country would follow Italy and Spain. “We are doing everything to maintain our credit rating, to borrow more cheaply,” he said.

German Chancellor Angela Merkel vowed to push for a plan to amend treaties to promote closer political union at December’s EU summit.

Prime Minister David Cameron is due to meet with Merkel today, with tense discussions expected over the UK’s role in helping the Eurozone.