Spain

Spain continued to find itself in the market's cross hairs Thursday, as mounting concerns over the economy sparked a sharp slide in the country's bonds and led to an evaporation of the effect of the European Central Bank's generous cash injection, The Wall Street Journal reported. The rout in Spanish bonds weighed heavily on financial markets, with the euro coming under pressure, stocks falling and Italian bond yields rising sharply.

Spanish borrowing costs jumped at bond auctions on Wednesday, spreading fear in European markets of a return of the euro zone debt crisis and overshadowing a successful step back into debt markets by neighbouring Portugal. Spain sold 2.6 billion euros of debt, at the low end of its target range, with a bond maturing in 2020 yielding an average 5.338 percent, higher than a forecast 5.2 percent and up from 5.156 percent when it was last sold in September.

Spain’s government, grappling with €57bn in combined annual costs for debt servicing and jobless benefits, will tolerate “no excuses or pretexts” from wayward autonomous regions in its drive to cut the public deficit, according to the budget minister, the Financial Times reported. Cristóbal Montoro described the situation as “extreme, at the limit and exceptional” as he presented parliament on Tuesday with the harshest budget since the death of dictator General Francisco Franco, comprising central government spending cuts and tax rises worth €27.3bn.

Thousands of protesters rallied in several Spanish cities as a nationwide strike disrupted public transportation and forced factory closures across the country, highlighting popular opposition to government austerity measures, The Wall Street Journal reported. The strike, called by Spain's two largest unions to protest a sweeping overhaul of labor laws, was mostly peaceful, marred by isolated clashes between police and demonstrators in some cities.

In assessing Europe's debt problems, bond investors are moving beyond Portuguese debt in their hunt for the next bearish bet. Their search is taking them right next-door, The Wall Street Journal reported. Spain's borrowing costs are rising amid worries Portugal's looming budget deficits will ripple across the Iberian peninsula. Spain's 10-year bonds yield 5.33%, up a quarter-percentage point in the past month.

Spain has never been so close to default and Greece, Ireland and Portugal may need further bailouts, Citigroup Inc. chief economist Willem Buiter said. “Spain is the key country about which I’m most worried,” Buiter, a former Bank of England policy maker, said in a radio interview today on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.

Spanish house prices tumbled at their fastest pace on record in the fourth quarter, a sign that a long-running property bust will continue to weigh on Spanish households and banks, The Wall Street Journal reported. House prices fell on average by 11.2% in the fourth quarter from the same period a year earlier, well below the 7.4% decline in the third quarter, while prices of used homes was down 13.7% in the period, the country's statistics agency INE said Thursday.

Italy's successful government bond sale Wednesday added new evidence that investors have begun to give Italy better chances of avoiding a fiscal crisis than Spain, another big euro-zone economy that has been seen at risk of needing a Greek-style bailout, The Wall Street Journal reported. Italy comfortably sold the maximum targeted €6 billion ($7.8 billion) in government bonds with maturities of three and seven years. It also did so at lower cost, with the yields on both bonds falling significantly from previous auctions of similar maturities.

European finance ministers agreed to suspend European Union funds destined for Hungary because of its failure to hit budget targets while, under pressure from other euro-zone governments, Spain agreed to deeper budget cuts than it had planned for this year, The Wall Street Journal reported. The two developments on Tuesday are signs of how the tougher policing of government budgets introduced since the onset of the sovereign-debt crisis is likely to generate tensions within the EU.

Eurozone finance ministers called on Spain to make new cuts in its 2012 budget to reduce its deficit by another 0.5 per cent of economic output, a stinging rebuke to the new government of premier Mariano Rajoy, which publicly flouted Brussels-imposed deficit targets less than two weeks ago, the Financial Times reported. Despite the new cuts, Madrid will still be allowed to breach a previously agreed deficit limit of 4.4 per cent of gross domestic product this year by nearly a full percentage point; its new target will be 5.3 per cent, according to a senior eurozone official.