European Markets Fall On Spain’s Delay In Seeking Help

European markets fell Wednesday as investor sentiment turned negative with concerns over the mounting debt pressure faced by the euro zone as Spain has not yet sought help to reduce its borrowing costs.

The French CAC 40 index was down 0.36 percent or 12.30 points to 3401.93.  Shares of France Telecom SA declined 1.36 percent and those of AXA SA dropped 1.23 percent.

London’s FTSE 100 index fell 0.40 percent or 23.01 points to 5786.44. Shares of TESCO Plc dropped 1.47 percent and those of IMI Plc declined 1.05 percent.

The German DAX 30 index declined 0.34 percent or 25.08 points to 7280.78. Shares of Commerzbank AG fell 1.45 percent and shares of SAP AG dropped 0.78 percent.

Spain's IBEX 35 was down 0.49 percent or 38.40 points to 7828.70. Shares of CaixaBank fell 1.44 percent and those of Telefonica SA dropped 1.23 percent.

The lack of announcement on Spain's decision on whether to seek help from the newly declared bond-buying program by the European Central Bank is affecting the investor sentiment. Market participants expect Spain to ask for a bailout under the enhanced conditions credit line (ECCL), which will trigger the bond-purchasing operation by the ECB.

“As markets wait for Spain to formally request bailout funds which in turn would trigger ECB bond peripheral bond purchases, patience is running thin. Hopes that a bailout is imminent were dashed as Spanish Prime Minister Rajoy denied that any request would take place soon,” Credit Agricole said in a note.

The Spanish government’s decision to delay seeking a bailout does not seem to have backfired. The government’s bond yields remain low by recent standards. But investors feel that the government would be unwise to wait too much longer. The main reason why the bond yields have remained low is that markets still expect Spain will seek assistance soon.

If markets were to conclude that the ECB’s Outright Monetary Transactions program might not ever be used, Spanish yields could quickly shoot back up to their summer highs. In such a scenario, Spain would suddenly find itself in a much weaker bargaining position to negotiate favorable conditions for a bailout.