MADRID — Investors worried about the viability of Spain’s banks sent the nation’s borrowing costs into the danger zone and shares sliding Wednesday, spooked about whether the government can pay for a bailout of a banking sector saddled with toxic loans fueled by a decade-long property frenzy.
Doubts over how recession-hit Spain will handle a $23.6 billion injection into troubled lender Bankia helped drive the interest rate on Spanish 10-year bonds — a gauge of investor confidence over how well the country can handle its debts — up to 6.67 percent. This was the same euro-era high it reached in November — just after elections ousted the Socialists blamed for failing to manage the financial crisis and brought in a new conservative administration.
There is a growing concern that more Spanish banks may need saving amid mountains of loans gone bad and foreclosures of property now worth far less than the loans paid out to build it. Some estimates put a complete sector bailout cost at between $62 billion and $186.8 billion. But Spain has only $6.2 billion left in the $23.6 billion bank-bailout fund it established in 2009. This means Spain will have to raise the money in markets.
Indeed, Spanish Economy Minister Luis de Guindos has warned that his country’s capacity to pay such a high cost to fund the debt it issues is “not very sustainable over the long term.”
