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Oli Scarff/PA Wire
Bond Markets

Euro crisis: Spain's cost of borrowing rockets as Lagarde warns of 'race against time'

If you were lending cash to the Spanish government for 10 years, you’d get an annual interest rate of 6.76 per cent.

THE COST of borrowing for the Spanish government has continue to rise today, further underlining the short-lived welcome given by investors and money markets to its €100 billion banking bailout.

10-year bonds were this afternoon being traded for 6.767 per cent – that is, Spain would have to pay 6.664 per cent interest each year for ten years, and then repay the full amount of the loan at the end of that period.

By comparison, the country would have been able to borrow for a pinch over 6 per cent yesterday morning, as investors had their first opportunity to pass a verdict on the bank deal agreed by ministers last Saturday.

Similarly, Italy has seen its costs spike, rising from 5.77 per cent yesterday at Friday’s close to just under 6.25 per cent at the time of publication.

Investors charge higher interest rates when they fear that the country may not be able to repay the full amount at the end of the loan – and instead charge penal interest rates to ensure that they recoup as much of their cash as possible.

The increased costs come as IMF head Christine Lagarde warned that the eurozone was ‘running out of time’ to solve its problems, appearing to agree with other predictions that action was needed within three months or the euro would collapse and disappear.

Der Spiegel quotes an interview with CNN, broadcast last night, in which the Frenchwoman seemed to back the evaluation of George Soros – and said action to save the currency was needed “more shortly (sic) than three months”.

Refusing to directly answer questions about whether Greece might leave the currency, Lagarde said the matter was “a question of political determination and drive”.

Report: EU preparing ‘worst case scenario’ measures if Greece quits euro

Read: This is what happens to Greece if it leaves the euro

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