Spain pays more for short-term borrowing

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Spain pays more for short-term borrowing

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The debt problems of Italy and Greece continue to hit Spain. Madrid was able to sell 4.5 billion euros worth of short-term government bonds but its cost of borrowing jumped compared to sales in August.

The amount of interest Spain had to offer to find enough buyers for its bonds rose even as the European Central Bank continues to support it by purchasing Spanish debt.

Spain and Italy’s debt sales have had the firm support of the European Central Bank action on the secondary market since early August when it started to buy bonds of countries at threat of a contagion from crisis.

Yet its purchases have not shaken off concerns that a debt crisis can be fully contained, and Standard & Poor’s downgrade of Italy’s credit rating one notch to A on Tuesday heightened the gloom and sent both Italian and Spanish bond yields higher.

That did not help Tuesday’s auction, said analysts. “Spanish debt has been under pressure. But it’s a pretty decent auction which has let the Treasury sell close to the top of its target in difficult circumstances,” said Orlando Green, strategist at Credit Agricole.

At the same time ECB President Jean-Claude Trichet urged Spain in a newspaper interview to continue reinforcing measures to return the country to sustainable growth even if progress had been made.

Trichet said Spain’s financial situation had improved considerably but more must be done. “Spain must continue to give special focus to resolutely applying new structural reforms with the aim of getting the highest possible potential growth, improving its productivity and thus restoring investor confidence,” he said in an interview published on Tuesday in Expansion newspaper.

Spain has introduced new labour laws which make it easier to hire and fire workers and restrict wage growth. It has also overhauled its banking sector, forcing unlisted savings banks to seek private capital or face nationalisation.