Plunging sales and soaring bonds push Spain closer to bailout

Tuesday, 29 May 2012 09:18

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Spain appeared to be moving closer to a bailout yesterday as borrowing costs kept climbing and sales plummeted.

Retail sales fell by a record 9.8 per cent during April, according to data from the National Statistics Institute.

This was the 22nd month in a row that the country had suffered a drop in sales and the amount was almost three times the 3.8 per cent decline recorded in March.

Rising taxes, a 24 per cent unemployment rate and austerity measures were discouraging shoppers, the report said.

At the same time, 10 year borrowing costs on Spanish government bonds hit 6.5 per cent as fears grow regarding the health of the nation’s banks.

Investors have been shaken by reports that the government plans to rescue struggling lender Bankia with sovereign bonds instead of cash.

But comments from Prime Minister Mariano Rajoy were unlikely to calm the situation, as he warned that Spain simply could not afford to let any one of its regional governments or banks collapse.

He told a press conference: “We are not going to let any region or financial entity fall, because otherwise the country would fall.”

Last night, Bankia, Spain’s fourth largest lender, reported the biggest loss in the country’s banking history, topping €3.3 billion.

The government wants to cut its deficit from 8.5 per cent of GDP to 5.3 per cent by the end of 2012, but the austerity measures are driving the country deeper into recession.

According to OECD forecasts, Spain’s economy will shrink by 1.6 per cent this year.

 

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