#RSS Feed for Financial Crisis articles - Telegraph.co.uk < img alt="dcsimg" id="dcsimg" width="1" height="1" src="//webtrends.telegraph.co.uk/dcsshgbi400000gscd62rrg43_4o2o/njs.gif ?MLC=&Channel=&Genre=&Category=&Content_Type=&Level=&source=&dcsuri=/no javascript&WT.js=No&WT.tv=10.2.10&dcssip=www.telegraph.co.uk"/> [p?c1=2&c2=6035736&cv=2.0&cj=1] Accessibility links * Skip to article * Skip to navigation [telegraph_print_190.gif] Advertisement Telegraph.co.uk ___________________ Submit Wednesday 23 January 2013 * Home * News * World * Sport * Finance * Comment * Blogs * Culture * Travel * Life * Fashion * Tech * Dating * Offers * Jobs * Companies * Comment * Personal Finance * Economics * Markets * Festival of Business * Your Business * Business Club * Money Deals 1. Home» 2. Finance» 3. Financial Crisis Debt crisis: Europe ratchets up grip on Madrid The EU-IMF Troika in charge of Spain's €60bn (£48bn) bank rescue is to demand much tougher action by the country's authorities to clean up toxic debts, risking a clash that could deter Madrid from requesting a full sovereign bail-out. Image 1 of 2 A shop-keeper cries while looking at the window of her shop, broken by protesters in downtown Barcelona during the Spanish general strike. Photo: Rex Features The EU-IMF Troika in charge of Spain's €60bn (£48bn) bank rescue is to demand much tougher action by the country's authorities to clean up toxic debts, risking a clash that could deter Madrid from requesting a full sovereign bail-out. Image 1 of 2 The region of Madrid said on Tuesday it was shelving a bond auction until markets brightened. The move came after Moody's downgraded five regions, including Andalucia and Catalonia, citing "large debt redemptions" in the final quarter of this year. It expects further regional bail-outs in 2013, raising fresh problems since the €18bn regional fund is exhausted. Photo: Reuters Ambrose Evans-Pritchard By Ambrose Evans-Pritchard, International Business Editor 9:04PM BST 23 Oct 2012 Comments Comments BNM Mare Nostrum, and other mid-tier "Group 2" banks such as Popular, Caja 3, and Liberbank, have little chance of tapping the markets to cover most of their capital deficits, according to Troika officials. They are also losing patience with the glacial pace of cuts at Bankia and other nationalised lenders such as Catalunya-Caixa and Banco Valencia, according to the Spanish newspaper El Confidencial. Brussels fears a repeat of the fiasco at Bankia, which had to be rescued just weeks after its recapitalisation plans had been approved. "We have had too many bad experiences with financial restructuring in Spain to be sure the plans will work this time," said one official. Some of the banks are assuming large capital gains on assets that are in fact deeply underwater, and are counting on a 20pc rise in the IBEX index of stocks by the end of the year. Madrid may see the escalating demands of the Troika as a foretaste of what could happen if Spain requests a sovereign rescue from the European Stability Mechanism (ESM), the pre-condition for the European Central Bank to start buying Spanish bonds. Related Articles * Markets fall as Draghi bond plan 'too vague' 02 Aug 2012 * Euro tumbles as Asian funds shun EU chaos 12 Jul 2012 * Debt crisis: Spain bows to EU ultimatum with drastic cuts 11 Jul 2012 * Germans in court battle to block eurozone bailouts 10 Jul 2012 * Spain sinks deeper into recession in third quarter 30 Oct 2012 * Debt crisis: ECB pledges action as southern Europe buckles 09 Jul 2012 Premier Mariano Rajoy is hoping to secure a bail-out with minimal conditions under a "precautionary credit line", but this is illegal for countries that have lost market access. German lawmakers have warned that the Bundestag will impose tough terms which may include cuts to public sector jobs, a neuralgic issue in Spain. Yesterday the Bank of Spain said the economy had contracted by 0.4pc in the third quarter. This was less than expected but may have been distorted by a rush of sales before a rise in VAT last month. "The worst of the contraction is still to come," said Ricardo Santos from BNP Paribas. Mr Rajoy's task keeps growing. Eurostat has ruled that the budget deficit was 9.4pc of GDP last year, not 8.9pc. The deficit this year is now likely to be 7.3pc, a full percentage point above the target. The deficit in the social security fund also reached a record 1pc of GDP, as unemployment of 25pc erodes the contributor base. Mr Rajoy told the senate that the pace of tightening was too severe. "Things can be done more gently, given that we are in a recession, but we won't give up on our commitments," he said. The yield spread on Spanish 10-year bonds over Bunds – the "risk premium" – punched back above 400 basis points, while the IBEX slipped 1.64pc, as optimism from last week's EU summit faded. Investors have begun to home in on comments by German chancellor Angela Merkel that the ESM will not carry the legacy costs of Spain's banking crisis. The burden will instead fall on the Spanish state. This will be 4pc of GDP on official estimates, or nearer 10pc if the pessimists are right about the true scale of property debts. The International Monetary Fund said earlier this month that Spain "must be able to recapitalise banks without adding to sovereign debt" if it is to recover. Adrian Zunzunegui from Cheuvreux said the underlying crisis was "still getting worse" as fiscal austerity ravages the tax base. "We believe the budget deficit will stand at 8pc in 2012." The region of Madrid said on Tuesday it was shelving a bond auction until markets brightened. The move came after Moody's downgraded five regions, including Andalucia and Catalonia, citing "large debt redemptions" in the final quarter of this year. It expects further regional bail-outs in 2013, raising fresh problems since the €18bn regional fund is exhausted. Mounting problems in France can only make matters worse. French business confidence plunged in October from 90 to 85, the lowest since the depths of recession in mid-2009. France has been stuck at zero growth for over a year but seems to have buckled in the late summer, perhaps because of president Francois Hollande's clash with business leaders. Firms face an extra €10bn in taxes in the latest budget. The business lobby Medef says investment is frozen and the private sector is in "semi-panic". Andrew Roberts from RBS said Spain's debt crisis is in limbo as markets wait for Mr Rajoy to pick up the telephone to Brussels. "Spain is still deteriorating 'credit' but nobody in financial markets is going to short Spanish debt as long as the ECB is standing there ready to intervene. Rajoy can hold on as long as yields stay down, playing his game of cat and mouse with the Troika. "The ECB has kicked the can into 2013 but the day of reckoning for EMU has yet to come," he said. 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