The Bank of Spain said the average interest rate in the auction was 4.49 percent, down from 4.87 in the last such auction on July 7. Demand surpassed supply by a ratio of about 1.75.
The deficit cap amendment is supported by Spain’s two main parties and expected to be passed by both chambers of Parliament by next week. As it stands now, the precise deficit cap of 0.4 percent of GDP will be set in a separate law due to be passed by June of next year, although it will not take effect until 2020.
Unions are furious and holding street protests — the biggest one is planned for next week in Madrid — as are regional governments which stand to see their financial autonomy severely limited.
Prime Minister Jose Luis Rodriguez Zapatero says that quickly enshrining budgetary discipline in the Spanish constitution is essential to reassure investors Spain will make good on its debt obligations and not follow Greece, Ireland and Portugal in needing a bailout.
He announced the proposed amendment only last week, surprising many in Spain and reaching rare consensus with his arch-rivals in the opposition conservative Popular Party, favored to win a general election scheduled for Nov 20.
Spain is fighting to recover from nearly two years of recession prompted largely by the collapse of a real estate bubble and a credit-fueled consumer spending spree. The jobless rate is near 21 percent — almost 45 percent for young people — and economic growth remains anemic.
Spanish bond yields — a direct measure of how jittery investors are about a country’s debt — soared to record levels early this month, and came back down only after the European Central Bank intervened and bought billions in Spanish bonds on the secondary market.
Broader
On Thursday, Spain’s financial markets were largely down, in line with a broader sell-off across Europe. The spread on Spanish 10-year bonds — the difference between their yield and that of the equivalent German bond — creeped up. The benchmark Ibex 35 stock market index was down by nearly a percentage point.
Meanwhile, serious financial woes in Spain’s regions are coming to light daily and providing their new conservative leaders with a powerful weapon ahead of November 20 general elections.
After a crushing victory in May local elections, the right-wing opposition Popular Party swept aside Socialists in regional governments across the country.
Now in control of 13 of the 17 regional governments and riding high in the polls, the Popular Party has been calling attention to the huge deficits left by their Socialist predecessors.
On Wednesday, the central Spanish region of Castile-La Mancha, home of the fictional hero Don Quixote, announced “exceptional” spending cuts to reduce a deficit equal to 4.9 percent of its gross domestic product at June 30.
The same day, Extremadura in the east, said its public deficit would hit 6.81 percent of GDP by the end of the year.
Catalonia, the northeastern dynamo with Barcelona as its capital, has outlined a deficit of 2.66 percent in its 2011 budget.
All of these figures far overshoot the Socialist central government’s deficit target for all the regions of 1.3 percent of national GDP.
Analysts say the slippages complicate the central government’s efforts to reduce the overall deficit from 9.24 percent of GDP last year to 3.0 percent — the European Union-agreed ceiling — by 2013.
Moody’s Investors Service cited the regions’ deficits when it threatened in July to downgrade Spain’s sovereign credit rating.
It downgraded the rating of six regions — Catalonia, Castile-La Mancha, Murcia, Valencia, Andalusia and Castile and Leon at the same time, noting “the deterioration in their fiscal and debt positions.”
In the first quarter of this year, only half of the 17 regions presented budget deficits that met the target set by Madrid, according to the finance ministry, which will soon publish the half-year figures.
Since the May local elections, however, the problem has taken on a political hue — the debt left by former Socialist administrations has become a club to wield ahead of the general election.
The president of Castile-La Mancha, Maria Dolores de Cospedal, who is also secretary general of the Popular Party, bemoaned in a news conference Wednesday the “economic ruin inherited from the previous government.”
In Extremadura, economic chief Antonio Fernandez of the Popular Party criticised the “short-sightedness” of the former team, which “focused on the present and forgot about what could happen and the future of the inhabitants.”
With a debt of 31.9 billion euros ($46 billion) at the end of 2010, Catalonia is now run by the nationalists.
Disregarding the central government’s plan to enshrine a balanced budget rule in the national constitution, Catalonia has announced plans to approve its own “golden rule” in the regional constitution.
Spendthrift regions, which splashed out in the years of a profitable property boom, have become an easy target for both right and left.
The Socialist president of the lower house of parliament, Jose Bono, Monday termed the duplication of public spending in the regions as “absurd.”
Some of the cuts announced in Castile-La Mancha give an idea of level of spending — the region has 2,500 official vehicles, many of which are now to be sold off, and its own representative office in Brussels, which will be closed. Another 19 regional government companies and foundations will be eliminated. Source http://www.arabtimesonline.com/NewsDetails/tabid/96/smid/414/ArticleID/173271/reftab/36/Default.aspx
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