Spain OKs austerity plan, investors unimpressed

Associated Press
Demonstrators protest against austerity measures announced by the Spanish government in the centre of Madrid, Spain, on Thursday July 19, 2012. Concerns over Spain's attempts to restore market confidence in its economy resurfaced Thursday after a bond auction went poorly and its borrowing costs edged higher — even as the country's Parliament passed the latest round of harsh austerity measures designed to cut its bloated deficit.  (AP Photo/Andres Kudacki)
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MADRID (AP) — Concerns over Spain's attempts to restore market confidence in its economy resurfaced Thursday after a bond auction went poorly and its borrowing costs edged higher — even as the country's parliament passed the latest round of harsh austerity measures designed to cut its bloated deficit.

The ruling conservative Popular Party used its majority in Parliament to push through the measures, which include a rise in sales taxes and a wage cut for civil servants.

As dusk fell, tens of thousands of government workers, trade union members and disgruntled Spaniards began marches and rallies in 80 cities throughout Spain. Large crowds gathered in Barcelona and Bilbao, while leading Spanish newspaper El Pais estimated on its website that more than 100,000 had attended the rally in Madrid.

The government also published details of the €100 billion ($122.9 billion) financial assistance agreement between Spain and the Eurogroup aimed at shoring up the country's struggling banks.

The Economy Ministry statement said the precise bailout amount "will be known once a bank to bank scan is complete," and that the loan mechanism will be available until Dec. 31, 2013. It also said the interest rate will be variable.

Marchers in Madrid carried Spanish flags bearing black bows for mourning and banners saying, "No to the cuts" and "You have ruined us."

Isabel Urbelz, a 54-year-old civil servant, said she was angry with the government because it had cut her Christmas bonus.

"I am indignant, I'm angry. Why can't they cut elsewhere?" she said.

The vote in parliament followed an auction of medium-term Spanish bonds, where the government had to pay substantially higher interest rates to unload €2.96 billion ($3.62 billion) in bonds maturing in 2014, 2017 and 2019. Its target range was €2 billion to €3 billion. Demand was roughly two times the amount on offer for each issue. But that was down from earlier auctions.

And the interest rate on the five-year debt rose sharply to 6.46 percent, from 5.54 percent at the last such auction on July 5. The Treasury provided no comparable rates for the other maturities.

In the secondary bond market, where issued debt is traded openly, the interest rate, or yield, on benchmark Spanish 10-year bonds — a measure of investor worries about the security of a country's debt — was at 6.95 percent Thursday, up 0.05 percentage points on the day.

The Spanish government, led by Prime Minister Mariano Rajoy, introduced the latest round of spending cuts and tax increases to shave €65 billion off the government's budgets by 2015. Some specific measures were left to be addressed later, such as speeding up the phasing in of an increase in the retirement age from 65 to 67.

The austerity package was unveiled by Rajoy last week after finance ministers from the other 16 countries that use the euro agreed the basic terms of a bailout of up to €100 billion to strengthen Spain's banking sector and gave the government an extra year to reach deficit-reduction targets.

The eurozone finance ministers are scheduled to hold a conference Friday to give final approval for the bank bailout package.

Treasury Minister Cristobal Montoro pulled no punches as he launched the debate in the morning. A day after saying "there is no money" to pay civil servant wages because recession and a jobless rate of nearly 25 percent are sapping tax revenue, he said Thursday that Spain simply cannot go deeper into debt.

"It is time to call a spade a spade," he told lawmakers from the podium. "Financing public services with more deficit and more debt will doom us."

Socialist opposition leader Alfredo Perez Rubalcaba accused the government of acting as a puppet to Brussels with so much belt-tightening at a time when so many people in Spain are out of work.

"Catch a plane to Brussels and tell them these cuts are a barbarity," Perez Rubalcaba said.

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AP correspondent Daniel Woolls in Madrid contributed to this story.

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