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November 16, 2011

Europe's Debt Crisis: Spain, France Face Higher Borrowing Costs

The European debt crisis touched Spain and France Thursday, with both countries now forced to pay more to finance their governments.

Spain, Europe's fourth biggest economy, sold nearly $5 billion in government bonds Thursday at a big 7 percent interest rate. That is the same rate that Greek, Irish, and Portuguese bonds hit before those countries were forced to ask for bailouts. But Spanish Finance Minister Elena Salgado says the country is "absolutely not at risk" of needing a bailout.

Also Thursday, French government bonds were selling at an interest rate more than double what Germany pays even though both countries have the same top AAA credit ratings.

Governments sell bonds to investors to raise revenue. The higher the interest rate, the more those governments have to pay back the investors when the bonds mature.

With investors worried about the spread of the European debt crisis, stocks fell Thursday in London, Paris and Frankfurt. U.S. stocks were also sharply lower Thursday.

In Athens Thursday, masked youths threw firebombs at police, who responded with tear gas and stun grenades. It was the first major rally against the new Greek coalition government of Prime Minister Lucas Papademos. His government is seeking to impose spending cuts, eliminate government jobs, and increase taxes as it tries avoid bankruptcy with the next $11 billion installment of last year's bailout.