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Spain costs fall but outlook grim

Thursday, September 20, 2012 - 02:00

Sept.20 - The latest Spanish bond sale has gone relatively well easing pressure on the country. But many believe a bailout is still inevitable as new data suggests the new ECB bond-buying programme has done little to improve business in ailing euro zone companies. Joel Flynn reports.

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He may be all smiles at the moment, but that could be because Prime Minister Mariano Rajoy is ignoring the elephant in the room. Spain needs a bailout. The good news on Thursday was that the country's 10-year borrowing costs fell to just below 5.7 percent. That's their lowest since January. But unless Spain requests international assistance, markets could quickly turn the heat back up. Norbert Aul is from RBC Capital Markets. SOUNDBITE: RBC Capital Markets European rates strategist, Norbert Aul, saying (English): "Rajoy and the Spanish government they definitely have to decide how they want to negotiate the terms with respect to conditionality of such a programme, and from that perspective it's also very important how the Spanish government and in particular Rajoy can sell a bailout programme or a precautionary credit line from that perspective to his electorate." Rajoy was meeting with Catalonia's President Artur Mas. The region makes up almost a fifth of Spain's economic output and many here want independence. And the prospect of regional elections elsewhere next month could be one reason Rajoy's waiting. Requesting a bailout could make things worse. So could a lack of growth and that's showing little sign of improving. New service sector data for the euro zone suggests recent European Central Bank action has so far under whelmed. Alpesh Patel is from Praefinium Partners. SOUNDBITE: Praefinium Partners founding partner, Alpesh Patel, saying (English): "The ECB is sticking to this line that they will do whatever it takes that is necessary. Now what they're saying to the market and to foreign exchange traders is 'we've got more firepower than you', so the rest of us back off and say 'ok, fine, we're not going to try and drag this lower because you're willing to go the extra mile'. The danger is some politicians somewhere, probably in Germany, will get a bit complacent." The ECB may now be forced now cut rates next month. Spain may have bought itself more time, but Rajoy's unlikely to be sitting this comfortably for much longer. Joel Flynn, Reuters.

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Spain costs fall but outlook grim

Thursday, September 20, 2012 - 02:00