EU failure to address Spanish debt issue unsettles investors

GLOBAL STOCK markets retreated yesterday after the EU summit in Brussels failed to address the Spanish debt issue even as leaders renewed their commitment to establishing a euro zone bank supervisor by the end of the year.

Spanish two-year bond yields rose for the first time in four days yesterday after prime minister Mariano Rajoy, speaking at the fringes of the EU summit, said he was not facing pressure to seek a sovereign bailout. Spain’s two-year yield climbed four basis points to 2.75 per cent at the close of markets in London, having dropped to their lowest level in six months on Thursday.

Irish bond yields remained relatively unchanged, with the yield on nine-year sovereign debt hovering around 4.7 per cent.

Chancellor Angela Merkel’s comments regarding the applicability of the June deal to already recapitalised banks came after the close of European markets, with some analysts predicting further market impact on Monday.

However, the absence of specific announcements regarding Spain during the second day of the two-day EU summit unsettled investors. Spain is widely expected to be the first country to turn to the newly established European Stability Mechanism (ESM) fund.

Equity markets across Europe finished lower yesterday, after the anticipation ignited by the first day of talks failed to be matched by specific commitments yesterday. Questions also remained about the implementation and specific legal implications of the proposed new European banking supervisory authority. Banking stocks in particular suffered yesterday, driving stock markets lower. – (Additional reporting: Bloomberg)