Spain’s borrowing costs rose on Tuesday after financial markets digested the impact of a massive 100 billion euro bailout from the European Union.
A day after stocks rallied on the news of the rescue package, 10 year Spanish bond yields hit near six-month highs of 6.65 percent. Fellow debt-laden eurozone economy Italy saw its bond yields reach a high not seen since January, at 6.19 percent.
Analysts said the higher the interest rate, the more those governments would struggle to pay loans back with their existing debt obligations.
Spain hasn’t yet told the EU just how much of the 100 billion euro rescue package its banks will need. That uncertainty and this weekend’s runoff election in Greece has caused the market jitters.
Meanwhile the Fitch ratings agency warned on Tuesday that the Spanish government will miss its budget deficit targets “by a considerable margin”.
Prime Minister Rajoy promised to bring the deficit down to 5.3 percent of gross domestic product (GDP) this year and to 3 percent in 2013.
Protesters gathered outside the Central Bank in Barcelona on Tuesday predicted that the bailout would only lead to more public sector cuts. In a country where one in four people is out of work, the massive cash injection is unlikely to stop unemployment rising. The government has told Spanish people to prepare for more layoffs before the year ends.