Spain Borrowing Costs to raise Amid Greece Fears

Spain’s borrowing costs look set to spike on Thursday when the country’s treasury sells up to 2.5bn Euros (£2bn; $3.2bn) of three- and four-year sovereign bonds.

It could pay buyers about 5% on the longest bond – up from just over 4% at its last auction two weeks ago. The auction comes amid fresh fears contagion from Greece could trigger a Spanish banking crisis.

Spain’s prime minister says borrowing costs could become “astronomical”. Mariano Rajoy called on European leaders to publicly back highly indebted European countries and said debt levels would have to be brought down to bolster market confidence.

“All these measures are to get out of the hole we find ourselves in,” he said on Wednesday.

Spain is in recession and unemployment is rising. Investors are concerned about the health of its public finances and banks.

Despite banking sector reform, borrowing costs have continued to rise.

Yields have risen significantly in secondary markets, suggesting the same will be true in the government auction.

In the wake of inconclusive elections in Greece amid growing public resistance to submitting to more austerity, there are escalating fears that Greece will leave the euro.

The ensuing turmoil could force a more serious fracture of the currency union, watchers warn.

Spain currently has a record 24.4% of people out of work, at about 5.6 million.

Unemployment in the eurozone reached a record high again in March as spending cuts continued to hit the working population.

Spain and Italy are both in recession and the rising borrowing costs have sparked concerns that they may need help or even bailouts, according to BBC.