Historic ECB interest-rate cut brings little relief to Spain

After lingering throughout the day above the 500-mark, Spain’s risk premium eventually closed at 539 basis points over the benchmark German bund.

The bond auction also didn’t help. The Treasury sold 10-year bonds at an average of 6.43 percent, up from 6.044 percent at the last auction on June 7.

Comments coming out of a news conference in Frankfurt by ECB president Mario Draghi concerning the European economy also contributed to the market downslides. The Italian economist predicted the “euro area would recover gradually, although with momentum dampened” by continuing tensions in debt markets and their impact on credit conditions.

Concerning the credit crunch in Spain and Italy, Draghi said it was “an error” to think that the ECB could help channel funds to banks so that they can be passed on to companies.

Euro-zone leaders agreed at the summit last week in Brussels to allow the bloc’s European Financial Stability Facility (EFSF) and its planned permanent replacement, the European Stability Mechanism (ESM), to directly recapitalize banks.

When asked about the outlook in Portugal, the ECB’s vice president, the Portuguese Vítor Constâncio, who was also at the news conference, said: “we have to wait and see.”

The drop in European borrowing rates had already begun to help mortgage holders, even before Thursday’s announcement. The Interbank Market, where European banks loan money out to each other, had anticipated that interest rates would drop and had begun to prepare to charge mortgage-holders lower payments in July.

But not all mortgage-holders will benefit. The discounts will only apply to mortgages that have already been contracted and those that do not have clauses specifying base rates.

Housing prices fell 4.74 percent during the first half of 2012, according to a report by pisos.com. The average price for a home was 2,006 euros per square meter in June — 8.09 percent less than the same month last year.