Even after Prime Minister Mariano Rajoy announced a 65 billion euro austerity plan to supplement the up to 100 billion euro bank bailout promised by euro-zone partners Spain has a long way go. The country’s borrowing costs have continued to rocket and they face having the bond markets closed to them.
Although Portugal was in a similar situation not too long ago, under the supervision of the troika they have gradually won back some measure of investor confidence. Spain cannot say the same. The nation desperately needs to attract investors willing to finance the euro-zone’s third-largest budget deficit.
After initially rejecting outside aid, showing resistance to early measures and making several unpopular announcements, progress in stabilising the Spanish economy continues to be slow.
Gilles Moec, an economist at Deutsche Bank, described the situation as ‘A kind of bubble of uncertainty.’ There are growing concerns that the steps recently taken will not be enough to turn the economy around and the Spanish populace are not happy.
Budget Minister Cristobal Montoro has attempted to defend the cuts, arguing that action has been decided by ‘necessity, necessity determines the road to follow’, but such reasoning has failed to temper resistance. Demonstrations against the cuts, particularly the cuts to public workers’ pay, have been popping up all over the country, led the two biggest unions in Spain.
Today, as police stand guard outside a barrier protected parliament, plans to sell Spanish bonds worth 3 billion euro’s are being finalised. It is hoped that this will help to slow the rising borrowing costs which pose a threat to capital market access. Bonds maturing in 2014, 2017 and 2019 will be auctioned while the Treasury focuses on shorter-dated debt. But short term fixes will not yield long term results.