Spain awaits bailout approval as bond rates rise

[July 20, 2012]  MADRID (AP) -- Finance ministers from the 17 euro countries are expected to approve a bailout for Spanish banks on Friday, as the country's borrowing rates in bond markets kept rising to unsustainable levels -- a sign investors worry the government itself may need rescuing.

The document the ministers will consider in their teleconference calls for strict monitoring of Spain's banks that receive aid. It also requires the Spanish government to present by the end of this month plans to reduce its budget deficit to under 3 percent of the country's gross domestic product by 2014.

The full amount of money needed to shore up Spain's banks is unlikely to be known until September, after individual banks have been examined. The finance ministers have agreed to lend up to (EURO)100 billion ($122.9 billion), and the agreement to be considered Friday calls for an initial disbursement of (EURO)30 billion ($36.9 billion) this month.

Spanish banks are saddled with huge losses from soured real estate investments. Because the government cannot afford to rescue them itself, it asked eurozone countries for the loans. It will be liable for repaying the loans until a European banking union is created, though that will likely take months.

Investors fear that the Spanish government could in the meantime face new costs helping its banks and could eventually need rescue loans itself.

Those concerns pushed the yield on Spain's benchmark 10-year bond to 7.05 percent on Friday, from 6.98 percent the previous day. The yield is indicative of the rate the government would pay if it were to raise such money from investors. A rate of 7 percent and above is widely considered too expensive for the Spanish government to pay for more than a few months.

The government has passed painful austerity measures -- tax hikes and cuts to benefits, salaries and pensions -- to reduce state debt and strengthen confidences in its finances.

Spaniards have been hit hard, with unemployment around 25 percent, and staged massive protests across the country on Thursday night.

Police say 15 people were arrested and 39 people injured overnight in central Madrid after tens of thousands of people took part in a demonstration to protest the conservative government's latest austerity package.

Police fired rubber bullets to disperse groups of protesters in streets in and around the Spanish Parliament building. The protesters set fire to garbage containers and threw cans and other objects at the police

A spokeswoman said Friday 10 police were among the injured. She spoke on condition of anonymity in keeping with police regulations.

The demonstration Thursday evening in Madrid was one of 80 held in cities across Spain to protest the austerity measures the government says are necessary if Spain wants to avoid a bailout like Greece, Ireland and Portugal.

[Associated Press; By CIARAN GILES and DON MELVIN]

Melvin reported from Brussels.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.