Imagine the interest rate on your mortgage going up and up until you can barely meet the monthly installments. How long do you hold on, scrimping and saving, before you throw in the towel?
That is the dilemma facing Spain, whose Prime Minister Mariano Rajoy is fighting to prevent his country becoming the latest and biggest victim of the economic crisis crippling the 17 countries that use the euro and ask for a full-blown government bailout.
The clock is ticking for the country, which is finding fewer and fewer buyers for its debt, sold on the market as bonds.Investors are charging the country increasingly higher rates so that it can borrow the money it needs to keep the economy and public services working.
Investors have taken flight as the uncertainty over the whether the country can afford to contain the problems in its banking sector and indebted regional governments continues unabated.
As demand falls for a country's bond, its price falls and the interest rate the country would have to pay to sell it rises.On the secondary market, where bonds are traded, the interest rate Spain would have to pay on 10-year debt has hovered around 7 percent for weeks.
Most market-watchers think paying an interest rate of 7 percent is unaffordable for a country in the long-term. And it's also the pain threshold that eventually compelled Greece, Ireland, and Portugal to request billion-euro bailouts.
The 7 percent interest rate is "a totem, because it shows a total lack of confidence in the country," says Matteo Cominetta, a European economist at UBS."The problem is that rates at that level kill the economy and basically make any growth impossible," he said.
"The road is getting narrower and narrower and in the end (Spain) will have to ask for an intervention."Investors are fretting over whether Spain will be able to repay its loans, and the country could end up being shut out of vital international debt markets.
High borrowing costs mean fewer funds for investment, and government austerity policies meant to save money to pay the increased interest rates could choke off growth.
Spain's future looks grim amid a catalogue of disheartening statistics: It is weathering an unprecedented double-dip recession, which is forecast to continue at least through next year. Almost a quarter of the working population is jobless, the eurozone's highest.
The International Monetary Fund says Spain's public sector debt is climbing rapidly. The IMF sees it rising to almost 90 percent of its (euro) 1.07 trillion gross domestic product this year, from 68.5 percent last year, though it should remain below the expected eurozone 2012 average of 92 percent.
Spain's budget deficit, which is supposed to stay within 3 percent of GDP like other eurozone members, came close to 9 percent in 2011.
The government is trying to get it down to 6.3 percent this year. Other members of the eurozone are also struggling to comply with the 3 percent target.Spanish banks are sitting on an estimated (euro) 176 billion in toxic assets after a real estate boom and bust and are now short of capital.
Spain's European partners have set already offered the country a (euro) 100 billion bailout loan to spare the banks from catastrophic collapse. Some of the country's semiautonomous regions, which take up almost 40 percent of public money, have overspent and are broke.
Some estimates put their combined debt at (euro) 140 billion. Spain's central bank released figures last month showing panicky investors are fleeing the country, pulling out a record (euro) 66.2 billion in March alone - about double the figure for December.
Spain's ability to pay its debts is vital for other European banks. They were exposed to Spanish debt to the tune of (euro) 134 billion at the end of last year, with German banks holding (euro) 53.1 billion and French banks (euro) 23.4 billion, according to the Bank of International Settlements.
Analysts reckon Spain has enough funds to manage its debts until next year. The Spanish Treasury took advantage of two events earlier on this year to build up a war chest that would save it from having to go to the bond markets too often and pay over the odds to sell its bonds.
The first was the (euro) 1 trillion in low-rate loans offered to banks at the end of last year by the European Central Bank.
indiatimes.com
That is the dilemma facing Spain, whose Prime Minister Mariano Rajoy is fighting to prevent his country becoming the latest and biggest victim of the economic crisis crippling the 17 countries that use the euro and ask for a full-blown government bailout.
The clock is ticking for the country, which is finding fewer and fewer buyers for its debt, sold on the market as bonds.Investors are charging the country increasingly higher rates so that it can borrow the money it needs to keep the economy and public services working.
Investors have taken flight as the uncertainty over the whether the country can afford to contain the problems in its banking sector and indebted regional governments continues unabated.
As demand falls for a country's bond, its price falls and the interest rate the country would have to pay to sell it rises.On the secondary market, where bonds are traded, the interest rate Spain would have to pay on 10-year debt has hovered around 7 percent for weeks.
Most market-watchers think paying an interest rate of 7 percent is unaffordable for a country in the long-term. And it's also the pain threshold that eventually compelled Greece, Ireland, and Portugal to request billion-euro bailouts.
The 7 percent interest rate is "a totem, because it shows a total lack of confidence in the country," says Matteo Cominetta, a European economist at UBS."The problem is that rates at that level kill the economy and basically make any growth impossible," he said.
"The road is getting narrower and narrower and in the end (Spain) will have to ask for an intervention."Investors are fretting over whether Spain will be able to repay its loans, and the country could end up being shut out of vital international debt markets.
High borrowing costs mean fewer funds for investment, and government austerity policies meant to save money to pay the increased interest rates could choke off growth.
Spain's future looks grim amid a catalogue of disheartening statistics: It is weathering an unprecedented double-dip recession, which is forecast to continue at least through next year. Almost a quarter of the working population is jobless, the eurozone's highest.
The International Monetary Fund says Spain's public sector debt is climbing rapidly. The IMF sees it rising to almost 90 percent of its (euro) 1.07 trillion gross domestic product this year, from 68.5 percent last year, though it should remain below the expected eurozone 2012 average of 92 percent.
Spain's budget deficit, which is supposed to stay within 3 percent of GDP like other eurozone members, came close to 9 percent in 2011.
The government is trying to get it down to 6.3 percent this year. Other members of the eurozone are also struggling to comply with the 3 percent target.Spanish banks are sitting on an estimated (euro) 176 billion in toxic assets after a real estate boom and bust and are now short of capital.
Spain's European partners have set already offered the country a (euro) 100 billion bailout loan to spare the banks from catastrophic collapse. Some of the country's semiautonomous regions, which take up almost 40 percent of public money, have overspent and are broke.
Some estimates put their combined debt at (euro) 140 billion. Spain's central bank released figures last month showing panicky investors are fleeing the country, pulling out a record (euro) 66.2 billion in March alone - about double the figure for December.
Spain's ability to pay its debts is vital for other European banks. They were exposed to Spanish debt to the tune of (euro) 134 billion at the end of last year, with German banks holding (euro) 53.1 billion and French banks (euro) 23.4 billion, according to the Bank of International Settlements.
Analysts reckon Spain has enough funds to manage its debts until next year. The Spanish Treasury took advantage of two events earlier on this year to build up a war chest that would save it from having to go to the bond markets too often and pay over the odds to sell its bonds.
The first was the (euro) 1 trillion in low-rate loans offered to banks at the end of last year by the European Central Bank.
indiatimes.com
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