SPAIN RESPONDED to a renewed wave of market doubt over Europe’s bailout plan for its stricken banks by reinstating a ban on short-selling, a move made in co-ordination with a similar ban in Italy.
Spain saw its 10-year borrowing costs rise to close yesterday to 7.52 per cent, easily surpassing earlier peaks on the first working day after euro zone finance ministers signed off on a €100 billion rescue package for the country’s banks.
Spanish media reported that up to six regions may seek aid from the central government after Valencia formally sought assistance, followed by Murcia, over the weekend.
With no immediate change to the terms of the Spanish bailout in prospect, euro zone officials say attention centres now on whether the European Central Bank revives its stalled bond-buying campaign on secondary sovereign bond markets.
Stocks in Spain plunged as much as 5.5 per cent before the short-selling ban and Italian shares lost 5.2 per cent before the ban, a reflection of concern that any failure to stabilise Spain would threaten Italy’s ability to continue financing itself on the market.
The Spanish market closed 1.1 per cent weaker and the Italian market closed down 2.8 per cent in the wake of the ban on short-selling, a practice where investors seek to profit from falling prices. The main European banking index ended down 2.7 per cent last night.
“European securities markets are going through a period of extreme volatility which might cause their disorderly functioning and affect the normal development of financial activity,” said Spain’s market regulator, the CNMV. “In these conditions, it is necessary to review the operation of securities markets in order to ensure financial stability.”
The three-month ban mirrors a similar measure last August, which included bans in France and Belgium. Neither France nor Belgium plans a new ban at present.
The ECB buying initiative has been in abeyance for months and the bank is reluctant to change course. However, officials not linked to the bank say recent remarks by its chief Mario Draghi leave open the possibility of a new intervention. Mr Draghi told French paper Le Monde last week the ECB’s mandate was not to solve the financial problems of member states but he noted that the bank must also “contribute to the stability of the financial system quite independently”.
In recent days, the Spanish government has said that only the ECB has the fire-power to “bet on the euro”. Minister of State for Europe Lucinda Creighton told reporters in Brussels yesterday that an ECB intervention might also be required to stabilise Italian borrowing costs. “Obviously all countries are vulnerable to contagion and I think Italy is suffering from that,” Ms Creighton said.
Renewed talk about Greece leaving the single currency was “hugely unhelpful”, she said.
