Spanish borrowing costs up, German rating may go down

Government employees demonstrate against the Spanish government's austerity measures, in the center of Madrid, on July 23, 2012.

Stacey Vanek Smith: Spain's borrowing costs are on the rise. The country is now paying a 7.5 percent interest rate -- the highest since it joined the euro.

Joining us now to discuss is Juli Niemann, an analyst with Smith Moore & Company in St. Louis. She joins us live. Good morning, Juli.

Juli Niemann: Good morning, Stacey.

Vanek Smith: Juli, what's happening in Spain right now?

Niemann: Well, that June 29th congo line was just a tad premature. The rise of the bond yields over that 7.5 percent, that's considered to be a killer, a point of no return for Europe. Euro markets are hitting new lows, unemployment is over 20 percent in a lot of Europe and banks are on the verge of collapse here. So Spain looks like they are going to need a full bailout. Spain is about five times the size of Greece though, and the eurozone just can't afford it -- it won't have anymore money, and much of Europe is sliding back into recession.

Vanek Smith: Also this morning, Juli, Moody's warned Germany that it's poised to lose its AAA credit rating because of problems in the eurozone. How serious is that?

Niemann: That's a sit up and take notice here. The German economy is contracting and recently Secretary of the Treasury Tim Geithner warned them not to push this austerity thing too far and make the political situation even more explosive in the failed-bailed countries as well. But when you have the one person holding the purse strings slowing down, that's going to be even worse for Germany than just having a Spainish bailout.

Vanek Smith: Juli Niemann with Smith Moore & Company in St Louis. Thank you, Juli.

Niemann: You bet. 

About the author

Juli Niemann is executive vice-president for research and portfolio management with Smith, Moore and Company.

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