How Long Can Spain Take The Financial Heat?
Imagine the interest rate on your mortgage going up and up until you can barely meet the monthly installments. How long do you hold on, scrimping and saving, before you throw in the towel?
That is the dilemma facing Spain, whose Prime Minister Mariano Rajoy is fighting to prevent his country becoming the latest and biggest victim of the economic crisis crippling the 17 countries that use the euro and ask for a full-blown government bailout.
The clock is ticking for the country, which is finding fewer and fewer buyers for its debt, sold on the market as bonds. Investors are charging the country increasingly higher rates so that it can borrow the money it needs to keep the economy and public services working.Investors have taken flight as the uncertainty over the whether the country can afford to contain the problems in its banking sector and indebted regional governments continues unabated. As demand falls for a country's bond, its price falls and the interest rate the country would have to pay to sell it rises. On the secondary market, where bonds are traded, the interest rate Spain would have to pay on 10-year debt has hovered around 7 percent for weeks. Most market-watchers think paying an interest rate of 7 percent is unaffordable for a country in the long-term. And it's also the pain threshold that eventually compelled Greece, Ireland, and Portugal to request billion-euro bailouts. The 7 percent interest rate is "a totem, because it shows a total lack of confidence in the country," says Matteo Cominetta, a European economist at UBS. "The problem is that rates at that level kill the economy and basically make any growth impossible," he said. "The road is getting narrower and narrower and in the end (Spain) will have to ask for an intervention."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV