Turmoil in Spain, Greece presses euro lower
Spain’s borrowing costs rose on Wednesday following anti-austerity riots in Madrid and news that the country’s recession continues to worsen. Riots have now occurred in three of the EU’s most troubled nations – Spain, Portugal and Greece – in the wake of government budget and wage cuts at a time of growing economic and social turmoil in the region.
Spanish Prime Minister Mariano Rajoy is expected to present tough 2013 economic reforms aiming to send a message that Spain is doing its deficit-cutting homework despite a recession and 25% unemployment. Today an independent audit of Spain’s banks will reveal how much money Madrid will need from a 100 billion euro ($130 billion) aid package that Europe has already approved for the banks.
Interest rates on Spain’s 10-year bonds topped 6%. Although the yield has surged this week, Spanish debt remains at least a point below danger levels for the country’s government. Investor fears about the eurozone had eased earlier this month after the European Central Bank buy bonds programme for nations asking for a bailout. However those concerns returned this week after protesters took to the streets in Madrid. Demonstrators may have been emboldened by this weekend’s news that the Portuguese government had reversed course and would not implement planned salary cuts after violent protests in Lisbon last week.
The economic reality in Europe thus still remains dire. Several countries have had to impose harsh new spending cuts, tax rises and economic reforms to meet European deficit targets and, in Greece’s case, to continue getting vital aid. The austerity has hit citizens with wage cuts and fewer services, and left their economies struggling through recessions as reduced government spending has undermined growth.
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