As the debt crisis in the European Union deepens, Spain and Belgium have sunk further in to turmoil. Amid rising uncertainty, the European Central Bank urged its member states to increase the size and scope of the €750 billion (£636 billion) Rescue Fund for future requirements. Emphasizing the gravity of the situation, ECB President Jean-Claude Trichet said: “We are calling for maximum flexibility and maximum capacity”.
The precarious condition of the Spanish Government came to the surface when it was quoted high interest rates for borrowing from the international money markets.
Spain borrowed €2.5 billion (£2.1 billion) at a rate of 3.45 percent, 46 percent higher than the rate it had paid a month ago while raising similar funds. The equivalent borrowing rate in Britain is 0.75 percent. To add to EU’s woes, ratings agency Standard and Poor’s put Belgium on the danger list.
EU leaders are preparing for a critical meeting this week to discuss the debt crisis and the worst affected members – Greece and Ireland will be top of their agenda.
The so-called PIIGS nations – Portugal, Ireland, Italy, Greece and Spain are finding it increasingly difficult to raise loans over concerns of their ability to payback burgeoning debt. In the summer, Greece borrowed £93 billion from IMF as emergency aid and Ireland accepted it required a £72 billion bail-out package, including an £7 billion of assistance from Britain.
It was hoped that the rescue of Greece and Ireland will stabilize the financial markets; however markets remain jittery about Spain and Portugal.
The new difficulties have also enveloped Belgium as S&P cut the outlook for the country to negative from stable and said their AA+ credit score is at risk. Belgium runs the risk of being downgraded if it continues to suffer from the political uncertainty that gripped the country six months ago due to inconclusive election result.
“We believe that Belgium’s prolonged domestic political uncertainty poses risks to its government’s credit standing, especially given the difficult market conditions many Euro-zone governments are facing”, observed S&P credit analyst Marko Mrsnik.