Spain forced to pay higher rates to attract bond buyers

In its latest auction, Spain had to offer sharply higher rates of return to get investors to buy almost 3.5 billion euro’s worth of its government bonds.

Economists said that trend is likely to continue until European leaders make progress on tackling the region’s debt crisis.

The major credit rating agencies — Moody’s, Fitch and Standard & Poor’s — each cut Spain’s credit rating this month.

While high, Spain’s borrowing costs — along with other countries at the fringes of the euro zone such as Italy — have been kept in check by the European Central Bank buying their bonds.

Trying to restore market confidence in its finances, Madrid has promised to reduce its annual public deficit from the equivalent of 9.3 percent of gross domestic product last year to 6.0 percent of GDP this year. Its target for 2012 is 4.4 percent and 3.0 percent for 2013.

However economists and the credit agencies suspect they will not achieve that due to slower-than-expected Spanish economic growth.

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