Spain’s Prime Minister Mariano Rajoy demanded at a closed G20 meeting that the eurozone set up a banking and financial union to halt the spiraling sovereign debt crisis, the Spanish media reported on Tuesday, referring to a source in Spain’s delegation.
His appeal came as Spain’s short-term borrowing costs rose to their highest since 1997 at a debt auction on Tuesday, as inventors feared the country would be unable to service its sovereign debt and would have to seek an international bailout.
“Mariano Rajoy demanded in his speech to G20 leaders that the eurozone urgently adopt a clear-cut and specific plan to create a banking and financial union,” Spanish media reported.
Spain believes the eurozone financial system should be subordinated to one person and also wants creation of a guarantee fund of bank deposits to help restructure financial institutions.
Unless these measures are taken, the eurozone as a whole and Spain in particular will be unable to restore the confidence of international financial investors, Rajoy said.
The creation of the single eurozone is both an economic and political project that has already brought positive results both to Europeans and the international community, he said.
Spain’s short-term borrowing costs rose to their highest since 1997 at a debt auction on Tuesday, as inventors feared the country would be unable to service its sovereign debt and would have to seek an international bailout.
At Tuesday’s auction, yields on Spain’s 10-year bonds traded above 7 percent, a level that is seen as critical for the Spanish government to service its debt and earlier forced other eurozone governments to seek international aid.
The yields on 12-month bills jumped to 5.20 percent, up from 3.099 percent at the previous May 14 auction, and the highest level since 1997.
Spain’s 18-month paper also met the government’s target amount but yields jumped to 5.350 percent, from 3.404 percent at the previous May 14 auction, the highest level since November 2011.
“If Spain is paying those kind of levels for its debt, it needs not only an ESM package to recapitalize its banks, it also needs an outright bail-out package,” Marc Otswald told The Guardian, “and it is becoming very difficult to see how it can manage without that beyond the end of Q3, unless yields fall dramatically.”
The Spanish economy is under heavy pressure and Madrid has already asked the EU to provide up to 100 billion euros in loans to recapitalize its banking sector, severely affected by growing bad debts due to loans to the country’s bloated real estate market.
The markets were also worried after Spain on Tuesday extended to September from July 31 a deadline for a group of auditors to present full reports on the capital needs of the country’s financial sector.
The decision has been agreed with Spain’s government, the International Monetary Fund and the European Central Bank, and also with the auditing firms Deloitte, KPMG, PwC and Ernst Young.
The Wall Street Journal reported on Tuesday the delay was to provide auditors with more time to complete their evaluation of the banks’ books, and also because many Spanish companies and government institutions are only thinly staffed in August, a traditional holiday month when the cabinet and parliament rarely meet.
Earlier Tuesday, Spain’s financial daily Expansion said the central bank recently notified the auditors studying the books of the country’s banks about the change in deadline.
The auditors are conducting the second phase of an external overview of Spain’s financial sector. Later this week, consultancies Oliver Wyman and Roland Berger are expected to present a preliminary estimate of capital needs for the entire sector.