Spain Credit Crunch (id)

Earlier market participants used to think that Greece and Spain scenarios are alike.

However, two weeks ago one of Spain�s largest banks Bankia asked for state aid of 19 bln euros, and it became quite clear that the situation in Spain much differs from that in Greece. In case with Greece, the crisis was caused by a budget deficit, but as for Spain, it has rather been afflicted by banking troubles.

Reasons for problems in the banking sector of Spain are plenty. They include lower prices of housing and pending consumer credit amid growing unemployment.

On Tuesday Spain Finance Minister Cristobal Montoro asked European help to recapitalize banks. He did not specify the amount needed however. According to analysts, it varies from 40 to 90 bln euros.

At a summit in June European leaders will thoroughly consider this issue and develop steps to create a banking union which is likely to be tasked with insuring deposits. The union is going to comprise a bank recapitalization fund. And yet, a question arises: how long will the implementation take?

Meanwhile, investors are being reluctant to pour money into Spain bonds. In this connection, the bond yield is rising aggravating the debt-driven severities.

Today Spain is holding an auction planning to sell over 2 bln euros in long-term bonds.

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