By James Bryce
FEARS continue to grow that Spain may need an emergency bailout.
It comes after borrowing costs inched ever closer to the level that led to three other European countries to require help.
Lending costs on 10-year bonds rose above six per cent for the first time this year, with economy minister Luis de Guindos admitting the country was back in recession.
The increase means Spain is now perilously close to the seven per cent mark, which proved to be the tipping point for Portugal, Greece and Ireland.
The news led to British banks losing a combined 2.5 billion euros in market value on Monday as investors worried about the knock-on effect.
The rise in Spain’s bond yields (to 6.2 per cent) caused panic for the eurozone as the country’s 1.1 trillion economy is seen as too big to bail out.
And while the International Monetary Fund (IMF) has predicted the eurozone recession will be ‘milder than forecast’ this year, new risks are expected for Spain whose economy will shrink by 1.8 per cent.
Japan has moved to ease the impact of the eurozone crisis on the global economy by pledging $60bn of loans for the IMF.
Britain is likely to be asked to stump up £10 billion to prop up the fund.
But it does not appear that this will help Spain in the short term according to analysts.
“We’re back in full crisis mode,” said Lyn Graham-Taylor, a strategist at Rabobank.
“It is looking more and more likely that Spain will need a bailout.”
Unemployment in Spain is the highest in Europe with a record 4.75 million out of work, including half of its under-25s.