Spain may have a new government pledged to restoring the country’s finances to health, but the Treasury on Tuesday faced a jump in yields to their highest level in 14 years for issuing short-term bonds, the first issue since Sunday’s elections. Three and six-month bonds are now costing Spain more than either Portugal and Greece.
The average yield on a three-month treasury bill has doubled in a month and now stands at its highest level since it was re-introduced in 2003.
Spain has not paid so much to borrow since 1997, and there are also investor fears about the new government’s policies. Think-tank Funcas in Madrid believes their announced spending cuts may produce a half-percent contraction of the economy next year.
The People’s Party has a thumping overall majority in parliament so it will be a strong administration immune to political pressure from regional parties who had previously been able to force compromises on Madrid.
However the PP has revealed few details about how it intends to restore growth and slash Spain’s unemployment, the highest in Europe.