The Rain in Spain

Not wanting to leave markets complacent going into the weekend, troubling headlines continue to hit the wires from the common-currency bloc overseas. Although a spokesman from the European Commission refused to comment on the issue, it appears that statements made earlier in the week are coming to fruition, and Spain is expected to formally request financial assistance over the upcoming weekend. Euro zone finance ministers will be holding a conference call this weekend, discussing the logistics of adding another European country to the dole, although no official monetary figure has yet been requested.

One idea that has been tossed around is the notion of a smaller bailout package for Spain - one that goes directly to the recapitalization of their banks and doesn't take the government out of credit markets. The main benefit of a lighter bailout package for Spain would be that it would not put as much of a strain on the EFSF/ESM, which would definitely struggle to cover the Spanish government's funding needs over the next three years, along with any potential additional aid requests from Portugal or Ireland. Despite comments from Spain's treasury minister earlier in the week, it appears Spain is not entirely shut out of credit markets just yet, as they were able to move almost 2.1bln of bonds yesterday; however, the real question is, how long can Spain manage the debt service when they are paying above 6% to borrow for ten years? Regardless, with the impending Greek elections on the 17th, EU officials will want to have some form of clarity for Spain, just in case the outcome of the elections throws markets into a tailspin.

The uncertainly is hitting European bourses, with the majors all firmly in the red. The EUR has also been pushed lower against the USD overnight, but is currently finding some supportive bids at 1.2450.