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Eurozone ministers meet in Luxemburg for bailout talks Spain's borrowing costs hit fresh highs
(40 minutes later)
Greece is expected to ask eurozone finance ministers to ease conditions on its bailout at a meeting in Luxembourg. Spanish bond yields hit a 16-year high on Thursday amid calls for eurozone ministers gathering in Luxembourg to back plans to reduce government borrowing costs.
Ministers are also expected to discuss bailouts for Spain and Cyprus. Madrid sold 2.2bn euros (£1.7bn) of bonds repayable in two, three and five years.
Independent auditors will detail the size of debts held by Spanish banks ahead of an expected formal request by Madrid for eurozone money. The yield on 5-year bonds rose to 6.07% from 4.96% in May, and went up to 5.54% on three year bonds from 4.87%.
The meeting comes days before a full summit of eurozone leaders who are under pressure to take action to cut government borrowing costs. On Monday, the yield on benchmark ten year debt hit a record high of 7.3%.
Greek bailout renegotiation Later on Thursday, independent auditors will detail the size of debts held by Spanish banks ahead of an expected formal request by Madrid for eurozone money at the meeting of ministers.
Greece's new finance minister Vassilis Rapanos faces a difficult task. The ruling coalition's mandate to make further spending cuts is very week following two divisive elections in a matter of weeks. Bond-buying scheme
But, according to the head of the Euro Working Group, Thomas Wieser, the faster-than-expected fall in national wealth now makes it impossible for Greece to meet the conditions of its bailout without making deeper cuts.
Eurozone ministers face a stark choice of either sticking to the fiscal targets and needing additional cuts, or changing the deadlines and needing extra money.
Extending the term of Greece's loans would reduce the country's monthly payments and give economic reforms such as the lower minimum wage and more liberal work practices more time to generate the economic growth necessary to repay the country's huge debts.
Borrowing costs
Spain, which is due to raise between one and two billion euros on the debt markets on Thursday, saw its implied cost of borrowing or yield on ten year debt rise to a record 7.3% on Monday.
Italian bond yields also hit euro era highs.
The constitutions of the European Union's existing bailout fund, the European Financial Stability Facility (EFSF), and the new European Stability Mechanism (ESM) fund, which is due to come into force next month, allow both to lend money to governments.The constitutions of the European Union's existing bailout fund, the European Financial Stability Facility (EFSF), and the new European Stability Mechanism (ESM) fund, which is due to come into force next month, allow both to lend money to governments.
In an interview with the Financial Times, Benoit Coere, a senior policy maker of the European Central Bank said: "Certainly it's a mystery why the EFSF was allowed almost a year ago to undertake secondary market interventions and governments have not yet chosen to use that possibility."In an interview with the Financial Times, Benoit Coere, a senior policy maker of the European Central Bank said: "Certainly it's a mystery why the EFSF was allowed almost a year ago to undertake secondary market interventions and governments have not yet chosen to use that possibility."
Providing a cheaper alternative to commercial bond markets would reduce the cost of financing government borrowing and countries such as Spain and Italy to meet strict targets on reducing total national debt. Providing a cheaper alternative to commercial bond markets would reduce the cost of financing government borrowing and enable countries such as Spain and Italy to meet strict targets on reducing total national debt.
Italian leader Mario Monti openly backs the strategy. Finland opposes it. The German chancellor Angela Merkel has not rejected the idea but says the policy is only theoretical at the moment.Italian leader Mario Monti openly backs the strategy. Finland opposes it. The German chancellor Angela Merkel has not rejected the idea but says the policy is only theoretical at the moment.
In the longer term, eurozone leaders are moving towards a system of more integrated government finances and bank regulation which could prevent future sovereign debt or banking crises.In the longer term, eurozone leaders are moving towards a system of more integrated government finances and bank regulation which could prevent future sovereign debt or banking crises.
But, at this week's meeting of leaders from the world's 20 biggest economies, there seemed to be consensus that eurozone politicians will have to put in place interim measures such as a bond-buying scheme soon to prevent the current crisis from deepening.But, at this week's meeting of leaders from the world's 20 biggest economies, there seemed to be consensus that eurozone politicians will have to put in place interim measures such as a bond-buying scheme soon to prevent the current crisis from deepening.
Greek bailout renegotiation
Greece is also expected to ask eurozone finance ministers to ease conditions on its bailout.
The country's new finance minister Vassilis Rapanos faces a difficult task. The ruling coalition's mandate to make further spending cuts is very week following two divisive elections in a matter of weeks.
But, according to the head of the Euro Working Group, Thomas Wieser, the faster-than-expected fall in national wealth now makes it impossible for Greece to meet the conditions of its bailout without making deeper cuts.
He said that eurozone ministers face a stark choice of either sticking to the fiscal targets and needing additional cuts, or changing the deadlines and needing extra money.
Extending the term of Greece's loans would reduce the country's monthly payments and give economic reforms such as the lower minimum wage and more liberal work practices more time to generate the economic growth necessary to repay the country's huge debts.
Ministers are also expected to discuss bailouts for Spain and Cyprus.