THE GOOD: Over the weekend, Spain was authorized to tap into a $125 billion eurozone bailout fund to prop up banks that have been saddled with billions in bad debt from the collapse of the nation’s housing market.
THE BAD: The yield on Spain’s 10-year bond yield rose to hit 6.81 percent, meaning it is getting terribly expensive for Spain to borrow money. The rate hit its highest level Tuesday since the country adopted the euro currency, signaling doubts about the country’s ability to pay the money back.
THE UGLY: The money to prop up Spanish banks is meant only as temporary relief. But few see Spain’s problems as temporary. The Fitch ratings agency has downgraded the nation’s credit rating and its largest banks, which are buying more of the country’s debt because there are few other takers. If the emergency funding does not shore up bank balance sheets as intended, Spain’s economic system could go into lockdown with no one lending to anyone, save for at exorbitant rates. The country’s borrowing rate is already approaching levels that drove three other European countries, Greece, Ireland and Portugal, into bailout territory.
