June 26 - As Spain played down hopes of a quick rescue of its banks, its short-term borrowing costs nearly tripled. Scepticism ahead of Thursday's EU Summit is also driving up Italy's borrowing costs. Joanna Partridge reports.
The request made - Spain is now waiting for the European financial package to recapitalise its banks. But the market pressure hasn't eased - and Madrid's short-term borrowing costs have almost tripled since last month. It had to pay almost 2.4% yield on its three-month debt, up from just 0.8% in May. The sale highlights Madrid's precarious finances as it struggles with recession and a debt crisis among its banks - 28 of which have just been downgraded again by ratings agency Moody's. That ratings cut raised Spain's borrowing costs says Victoria Torre, an analyst with Self Bank. SOUNDBITE: Victoria Torre, Self Bank Analyst, saying (Spanish): "This ruins our investors' confidence because in the end it only shows how they see us, how solvent people elsewhere think we are. So on one hand, it stops investors from buying our bonds, and on the other it leads to us paying very high interest." The bank downgrade briefly knocked Spanish stocks. But analysts are warning there's a worse selloff to come. They believe the bank bailout will force Spain's lenders to get rid of their stakes in the nation's top companies. Many had hoped EU leaders would come up with some concrete steps to solve the debt crisis at this week's summit. But that's already looking less likely. The finance ministers of the four largest euro economies - France, Germany, Spain and Italy - were meeting on Tuesday to do more preparation for the meeting. James Ashley from RBC Capital Markets says low expectations may not be a bad thing. SOUNDBITE: James Ashley, Senior European Economist, RBC Capital Markets, saying (English): "We're not going to come out of this summit with eurobonds and the crisis is going to be solved, but I think we will see progress on a number of fronts, both in terms of growth initiatives, banking reforms, closer fiscal union. So if anyone's expecting even a single strand of the crisis to be resolved, forget about it, but if you're expecting to see some substantive progress then I think actually that could happen." But while the crisis is unresolved - Spain's borrowing costs keep climbing. And a close eye is also being kept on Italy's rising bond yields. It's selling a lot of debt this week adding to fears Rome could be next to ask Europe for help. Joanna Partridge, Reuters