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Markets Slump as Spanish Debt Crisis Deepens

France 24, July 23, 2012

By News Wires (text)


The euro hit its lowest level in over two years and shares fell on Monday after reports that Spain’s indebted regions need help fueled fears that the country will become the fourth euro zone member to ask for a major bailout.

Ten-year Spanish government bond yields rose to a fresh euro-era high of 7.59 percent following local media reports that up to six regions may seek aid from the central government after Valencia asked for funds on Friday.

« Given the market reaction on the back of the news that more and more regions are looking to tap in to the liquidity fund..., it will be very difficult for Spain to circumvent further support for itself, » said Norbert Aul, a rate strategist at RBC Capital Markets.

Economy Minister Luis de Guindos on Monday said Spain did not need a full sovereign aid package such as the ones taken by Greece, Ireland and Portugal to stay afloat.

But the regional problems have overshadowed Friday’s formal approval of a bank bailout for Spain, worth up to 100 billion euros, and the efforts to reduce the national deficit.

Concerns over Greece’s future within the euro zone have also resurfaced ahead of the visit to Athens by a group of international lenders on Tuesday. They must decide if the government has done enough to qualify for further rescue payments and avoid a chaotic default.

The combination of worries about Spain and Greece sent the single currency down 0.6 percent to $1.2082, the lowest level since June 2010.

Data from the Commodity Futures Trading Commission released on Friday showed that currency speculators are increasing their bets in favour of the U.S. dollar as the euro zone debt crisis and its impact on global growth deepens.

« The ongoing negative developments in Europe support our view that the defensive currencies of the yen and the U.S. dollar will remain firm in the near-term amidst euro weakness, » said Lee Hardman, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

The steady trend away from riskier assets has pushed safe haven bond prices higher and yields lower across the board.

Ten-year U.S. Treasury note yields hit a record low of 1.4246 percent in Asia on Monday, while Japanese government bond yields fell to their lowest level since 2003 and German bond prices rose.


At the other end of the risk spectrum Italian 10-year government bond yields shot past their Irish counterparts for the first time since January 2009 as they gained 16 basis points to be 6.37 percent.

In equity markets investors were fleeing bank stocks, which are most exposed to the debt crisis, sending the FTSE Eurofirst 300 index of top European shares down 1.6 percent to 1031.86 points, after it lost 1.5 percent on Friday.

Euro zone bank stocks fell 4.9 percent while shares in Italian banks were temporarily suspended from trading soon after the open as investors feared Italy would be the next country to run into trouble if Spain needed a full bailout.

Spain’s main stock index, the Ibex, was down 3.2 percent after recording its biggest daily slump in two years on Friday falling 5.8 percent.

« It’s very much risk-off this morning, » said Central Markets senior broker Joe Neighbour. « There are fresh concerns over Europe, but those concerns had never really gone away in the first place. »

Futures prices for the S&P 500, the Dow Jones and the Nasdaq 100 were all pointing sharply lower, signaling continued risk aversion ahead.

Spain’s fiscal woes also triggered selling in oil, sending Brent down more than $1 at $105.43 a barrel, while corn and soybean prices eased from the record highs reached at the end of last week.

Spot gold eased, losing about 0.6 percent to $1,574.29 an ounce despite its role as a safe haven, as the stronger dollar made the precious metal less attractive.

The dollar has climbed more than 4 percent against a basket of currencies so far this year, weighing on gold that has risen about 1 percent during the same period.

The lack of commitment to further monetary stimulus from the U.S. Federal Reserve has left gold trapped in an increasingly narrow range, as investors await clarification from the next Fed policy meeting at the end of the month.

Police clash with anti-austerity protesters

By FRANCE 24, July 23, 2012

(video) News Wires (text)


Spanish police fired rubber bullets and charged protestors in central Madrid early Friday at the end of a huge demonstration against economic crisis measures.

The protest was one of over 80 demonstrations called by unions across the county against civil servant pay cuts and tax hikes which drew tens of thousands of people, including police and firefighters wearing their helmets.

"Hands up, this is a robbery!" protesters bellowed as they marched through the streets of the Spanish capital.

At the end of the peaceful protest dozens of protestors lingered at the Puerta del Sol, a large square in the heart of Madrid where the demonstration wound up late on Thursday.

Some threw bottles at police and set up barriers made up of plastic bins and cardboard boxes in the middle of side streets leading to the square and set them on fire, sending plumes of thick smoke into the air.

Riot police then charged some of the protestors, striking them with batons when they tried to reach the heavily-guarded parliament building.

The approach of the riot police sent protestors running through the streets of the Spanish capital as tourists sitting on outdoor patios looked on.

A police official told AFP that officers arrested seven people while six people were injured.

The protests held Thursday were the latest and biggest in an almost daily series of demonstrations that erupted last week when Prime Minister Mariano Rajoy announced measures to save 65 billion euros ($80 billion) and slash the public deficit.

Among the steps is a cut to the Christmas bonus paid to civil servants, equivalent to a seven-percent reduction in annual pay. This came on top of a pay cut in 2010, which was followed by a salary freeze.

"There's nothing we can do but take to the street. We have lost between 10 and 15 percent of our pay in the past four years," said Sara Alvera, 51, a worker in the justice sector, demonstrating in Madrid.

"These measures won't help end the crisis."

Spain is struggling with its second recession in four years and an unemployment rate of more than 24 percent.

Under pressure from the European Union to stabilise Spain's public finances, the conservative government also cut unemployment benefits and increased sales tax, with the upper limit rising from 18 to 21 percent.

As Rajoy's conservative Popular Party passed the measures with its majority in parliament Thursday, Budget Minister Cristobal Montoro defended them, insisting they were needed to lower Spain's borrowing costs.

"There is no money in the coffers to pay for public services. We are making reforms that will allow us to better finance ourselves," he said.

Protestors angrily rejected this claim.

"There isn't a shortage of money -- there are too many thieves," read one sign hoisted in the Madrid crowd.

Critics say the government's new austerity measures will worsen economic conditions for ordinary people.

Cristina Blesa, a 55-year-old teacher, said she and her husband would struggle to pay their son's university tuition fees because of the cuts and tax hikes.

"We're earning less and less and at the same time the price of everything is going up," she said at the Madrid protest.

"Now with the rise in VAT everything is going to be even more expensive. It's more and more difficult at the end of the month."

Spain is due this month to become the fourth eurozone country, after Greece, Ireland and Portugal, to get bailout funds in the current crisis, when it receives the first loan from a 100-billion-euro credit line for its banks.

Eurozone leaders were expected to finalise the deal in a telephone conference on Friday.

Spain had to offer investors sharply higher interest rates in a bond sale on Thursday, suggesting investors remain worried over the country's ability to repay its debts.

Protestors complained that they were being made to pay for the financial crisis while banks and the rich were let off.

"We have to all come out into the street, firefighters, street-sweepers, nurses, to say: enough," said Manuel Amaro, a 38-year-old fireman in Madrid holding his black helmet by his side.

"If we don't, I don't know where this is going to end."

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