After his election victory last weekend, Spain’s new centre-right prime minister Mariano Rajoy begged the markets for “more than half an hour” to get to grips with Spain’s debt pile. But fears of an eventual default increased. Early this week Spanish ten-year bond yields rose to a new unsustainable euro-era peak above 6.5%. The yield on three-month paper exceeded 5.1%, double what markets demanded on the same bond last month.
Rajoy “is stuck in the blocks when a fast start is needed”, says Andrew Peaple in The Wall Street Journal. He only takes office next month and he has been vague about the public spending cuts required to slash the public deficit from 9% last year to 3% in 2013.
This year’s deficit target will be missed as growth has disappointed. And “Spain is losing out in a broader race against time” – jitters over the future of the euro are driving yields up everywhere. With the European rescue fund looking dead in the water and unable to rescue Spain, adds Lex in the FT, speculation over large-scale money printing by the European Central Bank is mounting.