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Matt Dunham/AP

Euro crisis: Spanish cost of borrowing hits 7pc as investors seek safety

The costs had fallen after Greece’s election, but are back up this morning as the fear of contagion remains…

THE COST of borrowing for the Spanish government has shot to new highs this morning – undoing any hopes that the outcome of the Greek election had put an end to any fears of a currency collapse.

The interest rate demanded by investors in return for a 10-year loan this morning breached the symbolic 7 per cent barrier – a level most analysts consider to be unsustainable, and to be a level that no government could afford to borrow at.

Having stood at 6.84 per cent at the close of business on Friday – ending a torrid fortnight, having stood at 6.001 per cent on June 7 – the costs rocketed this morning, and stood at 7.124 per cent as of 10:30am Irish time this morning.

The immediate increase came after the costs had briefly fallen to 6.8 per cent, with investors apparently feeling that the victory of pro-bailout parties in Greece had staved off the prospect of that country leaving the euro.

The repeated surge, however, indicated that investors believed the fundamental situation to have remained unchanged – with Spain at risk of a sovereign default given the money it will have to inject into its ailing banking sector.

The renewed spike meant that the gap between the costs of borrowing for Spain and Germany had reached nearly 5.7 per cent – a gap which underlined the attitude of investors in believing that weaker European economies, however large, were no longer a safe investment.

The cost of borrowing for Italy also reached renewed highs, standing above the 6 per cent mark, at 6.043 per cent.

The cost to Ireland for a nine-year loan stood at 7.435 per cent, virtually unchanged, though the cost of shorter-term borrowing fell: a two-year loan stood at 6.438 per cent, still well above a level considered sustainable.

Greece: Pro-bailout parties head into coalition talks

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