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Anorak | Greece votes and Spain gets it – Spain’s bond yield kills the euro

Greece votes and Spain gets it – Spain’s bond yield kills the euro

by | 18th, June 2012

IT was supposed to be that if the “right” Greek party won the election then the pressure would be off Spain and Italy: for the euro would be saved.

The “right” party in Greece being anyone other than Syriza essentially, as the other two that had even a hope (Pasok and Ne Democracy) have already agreed that they’ll do the right thing and keep Greece paying its debts and in the euro.

So, that happened: New Democracy squeaked past Syriza and the euro is saved! Spain is safe!

That’s Spain’s 10 year bond yield at 7.1 per cent according to Bloomberg’s composite data.

Ooops!

The generally agreed number is that if Spain’s bond yield goes about 7% then Spain’s toast.  For what it means is that as old debts come up for repayment then they’ve got to issue new bonds to get the money to pay off the old ones: that’s what governments do, they never actually repay debt. But on that new debt they’ll have to pay 7% or more in interest and everyone can see that this just isn’t sustainable. You can do it when 1%, or 5%, of your debt is paying this much. But not when 50%, or 75% is. The interest bill just becomes too high.

So, the right Greeks won and Spain’s still stuffed. The euro might still be here when you come for your summer hols. This year anyway.

Image: Leader of the New Democracy conservative party Antonis Samaras leaves an elections kiosk after speaking to his supporters at Syntagma square in Athens, Sunday, June 17, 2012. The pro-bailout New Democracy party came in first Sunday in Greece’s national election, and its leader has proposed forming a pro-euro coalition government. (AP Photo/Petros Karadjias)



Posted: 18th, June 2012 | In: Money Comment (1) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink