MADRID (AP) — Spain’s borrowing rates have hit a high not seen since the country joined the euro in 1999 after a credit ratings agency downgraded the country’s ability to pay down its debt.

The interest rate — or yield — on the country’s benchmark 10 years bonds rose to a record 6.96 percent in early trading today, close to the level which many analysts believe is unsustainable in the long term and at which countries such as Greece, Ireland and Portugal have sought an international bailout.

The ratings agency Moody’s downgraded Spain’s sovereign debt three notches from A3 to Baa3 Tuesday evening, leaving it just one grade above “junk status.”

Moody’s said the downgrade was due to the offer from eurozone leaders of up to (euro) 100 billion to Spain to prop up its failing banking sector, which the ratings agency believes will add considerably to the government’s debt burden.

The lowered score means that even fewer investors will buy Spanish debt as organizations such as pension funds are mandated not to invest in assets with such low creditworthiness.

The bailout was meant to recapitalize the banking system and calm Europe’s debt crisis. Instead, investors seem unnerved by the government taking on extra debt and have pushed Spanish bond yields — a measure of market jitters — higher all week.

The ratings agency said the Spanish government’s ability to raise money on global markets was being hindered by high interest rates, a situation which had led it to accept eurogroup funds to recapitalize debt-burdened banks.

Some details of what the bailout might look like began to emerge today. European officials are considering selling off banks’ assets as part of the plan to prop up the Spanish banking sector, a spokesman for Competition Commissioner Joaquin Almunia said.

“Liquidation is always looked at,” said Antoine Colombani. “We prefer to liquidate when it’s cheaper for the taxpayer.”

Since a weekend agreement to save the banks involves first lending the money to Spain, there are concerns that taxpayers are ultimately on the hook for the banks’ bad decisions. Also, investors are worried that the deal raises Spain’s debt and deficit levels.

Eurostat, the European statistics agency, said Wednesday that it was unclear how much the country’s deficit would rise because it depended on how it lent the money to the banks. Part of that decision will depend on the interest rate the banks are given; if it’s too low, it could be considered more a gift than a loan and would count against the deficit.

Colombani said that under one plan being considered, the minimum for the rate would be 8.5 percent. Eurostat did not immediately respond to questions about whether that would be high enough to avoid having the loans count against deficit.

Part of Almunia’s role is to help countries deal with troubled banks, and he will travel to Madrid on Friday to meet with Prime Minister Mariano Rajoy.



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