Spain Will Ask for Help

Spain's banks are under tremendous pressure as financial markets move against them and depositors withdraw money (Financial Times: draw down reaches €100 billion). The bond rating agency, Finch, cut Spain's credit rating by three notches to BBB today, contributing to the rising cost of borrowing. The spread, or premium, between Spanish and German 10yr bonds reached a historic high. Fitch says that Spanish banks need between €50 to €60 billion to cover losses on domestic loans.  The amount of Spain's non-performing loans alone exceed Greece's GDP at $273 billion. The Spanish finance minister said his government will wait to make an aid request until after an IMF report and an independent audit of Spanish banks, both due this month. His country objects to the imposition of austerity measures by the EU or IMF as conditions to financial aid since its deficit spending was not as extravagant as Greece's or Italy's. Meanwhile, Germany is making contingency plans to rescue Spain's bad-debt ridden banking sector. Financial analysts generally think that Spain is "too big to fail" if the single currency zone is too survive. There was some optimism today that the country could avoid the fate of Greece as Spain's auction of $2.5 billion in government bonds was deemed successful.