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| Mariano Rajoy en Bilbao. Imagen tomada por Iker Parriza (Photo credit: Wikipedia) |
Recession-hit Spain has come under pressure to tap an ECB bond-buying program, designed to keep a lid on the country's borrowing costs. Throughout the summer, Spain has been hit with high interest rates on its bonds, raising speculation that the country might soon be forced to ask for an international bailout to help it manage its debts. The ECB's program comes with the condition that Spain has to first ask for assistance from the other 16 countries that use the euro before the central bank will step in and buy its bonds. So far, the government has been reluctant to ask for help for fear of the conditions the eurozone will attach to its aid.
Analysts say the government, led by Prime Minister Mariano Rajoy, hopes Thursday's budget measures will be enough to stop the eurozone imposing further spending and deficit controls when Spain eventually does make a request for assistance. The country is battling to fulfil an EU commitment to reduce its deficit from 8.9 per cent last year to 6.3 per cent in 2012, 4.5 per cent next year and to 2.8 per cent by the end of 2014.
Spain is at the centre of the euro currency crisis — its €1.4 trillion ($1.8 trillion) economy is the third largest in the eurozone and any request for a full bailout would stretch the region's finances. The country is struggling in a recession to prop up its shaky banking sector burdened with toxic assets and support its heavily indebted regional governments.
Thursday's budget package comes in the wake of anti-austerity protests in Madrid over the past two nights, big falls in Spanish stocks and increased borrowing rates.
Just hours before the government unveiled the new measures, the interest rate on Spain's 10-year bond edged back over 6 per cent — the level it was at when the ECB announced its bond-buying plan. ... Continue to read.
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