Is Spain next in line for a bailout?

BORROWING costs in Spain surged back into the danger zone last night as the crisis in the eurozone refused to die down.

The crucial ten-year bond yield – the amount the government in Madrid pays to borrow – jumped above 7 per cent.

That level is widely seen as the point of no return for debt-riddled countries and triggered bailouts in Greece, Ireland and Portugal. MPs in Germany last night approved the £80billion rescue of the Spanish banking system, but it is feared the package is merely a prelude to a full-blown bailout.

Spain is struggling to convince international investors and politicians that it can reform its banks and get its ballooning budget back under control.

Madrid was forced to pay record interest rates to sell debt at a series of bond auctions yesterday as it became increasingly marginalised, along with other troubled countries such as Italy.

The average yield on bonds repay- able in five years rose to 6.46 per cent from 6.07 per cent at an auction last month. The average yield on sevenyear bonds was 6.7 per cent, up from 4.83 per cent last time.

‘Spain sold what they wanted to sell, that’s about the only good thing about it,’ said Marc Ostwald, a strategist at City firm Monument Securities.

‘We’re still waiting for Spain’s bank bailout to be finalised and there’s no guarantee that Spain itself won’t need a bailout at some stage, so why would people want to be charging in right now?’

Borrowing costs at a similar auction in France tumbled while German and UK yields are close to record lows as investors look for safe havens to put their money.

‘For Spain, it’s a combination of the economic uncertainty and the bleak economic outlook,’ said Ben May, of Capital Economics. ‘France has its problems as well, but they’re on a totally different scale.’