Spain's Borrowing Costs.

Yesterday (18/6/12) an auction of Spanish bonds saw the cost of the interest on the nations debt rise to 7.3% which is very close to the level at which Portugal, Ireland and Greece were all locked out of the debt markets and forced to seek bailouts from the European Union (EU)/International Monetary Fund (IMF).

This is obviously market retaliation for the EU's refusal to flinch over the prospect of Sunday's (17/6/12) election result forcing Greece out of the Eurozone rather then any legitimate concern about the Spanish economy. However the justification the markets are using for the move is that the USD125billion bailout of Spanish banks that was announced on June 9th (9/6/12) will take the form of an EU loan which adds to the nation's sovereign debt and this new loan will take priority over any privately held bonds in the repayment queue.

As the June 9th bailout was itself mainly bravado on the EU's part it may now be worth considering redefining it's terms so it is classified below private bonds in the repayment queue. It is also worth considering whether it is all entirely necessary. After all the decision made at the emergency G20 Summit in London in April 2009 was the root cause of the current Eurozone crisis by making national economies responsible for the debts of private banks pushing the levels of sovereign debt to unsustainable levels in many countries.