Spain’s government must be ready to take further measures to ensure strict budget deficit targets are met, the Bank of Spain governor said on Tuesday, hours after debt costs leapt at a primary auction on sliding confidence in the country’s finances.
Short-term borrowing costs almost doubled from a month earlier at a sale of more than €3 billion ($3.92 billion) of short-term government debt on Tuesday, as investors sought safe haven alternatives.
This was a bad sign for a longer-term auction on Thursday although good demand at Tuesday’s sale helped nudge 10-year bond yields back below the dangerous 6% threshold they passed on Monday.
Speaking before parliament’s budget committee, Bank of Spain governor Miguel Angel Fernandez Ordonez said the centre-right government’s deficit-deflating austerity measures were essential to regain confidence.
“The tensions we have once again experienced in recent weeks are powerful reminder that the crisis is still far from over and that our economy’s situation remains a particular cause for concern in Europe,” he said.
Spain’s government is fighting to convince sceptical markets it can reduce one of the highest budget deficits in the euro zone as the economy slips into recession amid huge unemployment.
Ordonez ruled out the need for a rescue package and said a new three-year financing operation from ECB was not being planned, but everything was possible.