Spain’s Borrowing Costs Rise as Bank Woes Deepen

Shares in Bankia plunged almost 30 percent early Monday before recovering somewhat, closing down 13.4 percent. Trading had been suspended Friday before the bank’s board called for an additional 19 billion euros, or almost $24 billion, of government money after reviewing the latest losses.

Stocks were down broadly in Spain. That dragged down markets elsewhere in Europe, despite some optimism about weekend polls in Greece indicating that political parties might be able to form a government after June 17 elections. If that happened, the Greek parties favoring continued European aid might be less likely to exit the euro zone.

In Spain, investors are increasingly worried about the banking industry, with 1 trillion euros in deposits, and whether it will need a bigger bailout, one that Europe cannot easily afford. The prime minister, Mariano Rajoy, sought to counter those concerns, vowing Monday that “there will be no Spanish banking rescue.”

Still, most analysts expect that ballooning loan defaults, coupled with dangerously high borrowing costs for the Spanish government, will eventually lead Madrid to seek emergency financing for its banks from the European Union.

The so-called risk premium demanded by investors for holding 10-year Spanish government bonds, instead of German bonds, reached 5.1 percentage points Monday, the biggest differential since the introduction of the euro.

While the government could seek to raise cash on the bond markets, it now would have to pay interest rates near a record. On Monday, the yield on Spanish 10-year bonds rose as high as 6.5 percent, close to the 7 percent level that led to bailouts in Greece, Ireland and Portugal.

“If Spain wants to calm the markets and reduce the risk premium, the only possibility seems to be to appeal for help to the European institutions,” said Arturo Bris, a Spanish economist who teaches finance at the International Institute of Management Development, known as I.M.D., in Switzerland. “It’s just too late for the government to make strong statements in order to appease the markets.”

Daragh Quinn, a banking analyst in London for Nomura, on Monday described the Bankia collapse as “grotesque, unbelievable, bizarre and unprecedented.” The phrase was coined as the acronym G.U.B.U. in Ireland, where the economy was sunk by the collapse of its banking sector and received an 85 billion euro bailout in late 2010 from the European Union, European Central Bank and International Monetary Fund.

As investors seek havens from the euro zone’s troubles, Switzerland — which is not part of the European Union and uses its own currency, the franc — has begun considering new controls to stop a destabilizing inflow of foreign currency into the country. The Swiss National Bank worries that too much money rushing in would bid up the value of the franc so high that Switzerland’s industries would have trouble competing on global markets.

In Spain, Luis de Guindos, the economy minister, had forecast this month that the cost of rescuing Bankia and other Spanish banks would not exceed 15 billion euros. Mr. Quinn, however, estimated Monday that recapitalizing Spanish banks would cost up to an additional 60 billion euros.

Madrid does not have that kind of money, having depleted the funds previously set aside to cover smaller banks. Bankia has already received a 4.5 billion euro emergency loan, bringing the total cost of its rescue to 23.5 billion euros, including the 19 billion euros requested Friday.

The Spanish government seized control of Bankia on May 9, two days after its executive chairman quit. On Friday, the bank’s board revised its accounts, posting a 2011 loss of almost 3 billion euros instead of the 309 million euros in profit reported in February.

The government could soon get saddled with three other banks — CatalunyaCaixa, Novacaixagalicia and Banco de Valencia — that have been put up for sale, so far unsuccessfully.