MADRID, Spain -- 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. Government workers, along with other disgruntled Spaniards, are planning massive rallies in dozens of Spanish cities Thursday evening.
The vote followed an auction of medium-term Spanish bonds, where the government had to pay substantially higher interest rates to unload C2.96 billion (US$3.62 billion) in bonds maturing in 2014, 2017 and 2019. Its target range was C2 billion to C3 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 per cent, from 5.54 per cent 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 per cent 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 C65 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 C100 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 per cent 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.
