Spain had to pay sharply higher borrowing rates in a short-term debt auction yesterday as investors feared it might become the next victim of the eurozone debt crisis.
Analysts and investors are showing concern about the ability of Spain to reduce its annual public deficit
Rates leapt for the auction of 12- and 18-month bonds, allowing the Treasury to raise a higher-than-targeted €3.178 billion but at an exorbitant cost.
The sum raised was well above the targeted range of €2 billion to €3 billion, Bank of Spain figures showed.
But when compared to a similar auction on March 20, the rate on 12-month debt soared to 2.623 per cent from 1.418 per cent and the rate on 18-month debt jumped to 3.110 per cent from 1.711 per cent.
The debt sale was the first of two major tests of waning market confidence in Spain this week, with the state hoping to raise up to €2.5 billion in an auction of benchmark 10-year government debt tomorrow.
The auctions come at a time of heightened tensions, with yields on 10-year government bonds soaring above six per cent in past days for the first time this year.
Analysts and investors are showing concern about the ability of Spain to reduce its annual public deficit at a time when the unemployment-scarred economy is plunging into recession.
Spain posted a public deficit of 8.51 per cent of gross domestic product in 2011, missing the six per cent target by a wide margin, in part because of regional governments failing to mop up the red ink.
The government has promised to cut the deficit to 5.3 per cent of GDP in 2012 and three per cent of GDP in 2013.
Economy Minister Luis de Guindos said this week that the country had no “Plan B” and that it would not need to ask for an international rescue.
“Spain is not going to ask for a rescue. No intervention will take place,” he said in an interview with the conservative daily El Mundo.
In the first three months of 2012, Spain’s Treasury had already raised 50 per cent of its financing needs for the year, he noted, and banks had enough liquidity to make interest payments for the next two years.
“Spain has absolutely no financing problems or urgent needs,” Mr De Guindos said.
He stressed that the government’s 2012 budget, with spending cuts and tax increases of €27 billion, was credible and based on a realistic forecast for a 1.7 per cent contraction of economic output for the year.