With Spanish bonds trading closer to levels that prompted Greece, Ireland and Portugal to seek European bailouts, Rajoy will address lawmakers of his Peoples Party today to explain the deepest budget cuts in three decades reports Bloomberg.
“Without a doubt, a good part of Spain’s future is at stake,” Rajoy told senators yesterday, as he urged regional governments to contribute to spending cuts. “The problem is that the markets can lend or decide not to lend.”
Rajoy has stepped up his rhetoric in the past week as he seeks to persuade Spaniards to accept spending reductions and tax increases as a less painful alternative to a bailout. His three-month-old government is struggling to convince investors it can reduce the deficit by a third this year and crack down on overspending by regional administrations.
As Spain’s regions suffer from a slump in tax revenue while most are locked out of capital markets, Esperanza Aguirre, the president of the Madrid region, yesterday proposed handing back responsibilities such as health and education to the central government. Aguirre, once a potential rival to Rajoy for the PP leadership, said the move would save 48 billion euros by avoiding overlap.
The 10-year bond yield rose to 6.02 percent today, the most since December. That compares with the 7 percent level that pushed Greece, Ireland and Portugal to seek bailouts. The extra yield investors charge Spain to borrow for 10 years compared with Germany widened to 437 basis points, compared with about 15 basis points in the first decade of monetary union.