Spain has passed a major bond market test, gaining breathing space as it tries to avoid a full-blown bailout and wrestles with Catalan demands for fiscal autonomy.
Borrowing costs tumbled as Spain issued benchmark 10-year government bonds for the first time since the European Central Bank outlined plans to buy the debt of stricken member states.
The result will be welcome news for Prime Minister Mariano Rajoy, who has made clear he hopes to avoid reaching for an ECB rescue and the strict, politically costly conditions that come with it.
"Spain's bond auction today was overall a pretty good result for Rajoy," said Spreadex trader Simon Furlong in London.
"With better demand than the previous auction and a lower yield, Rajoy can put off a request for a bailout for a little longer," he added.
The economic crisis is piling up pressure on the conservative Popular Party prime minister, however.
Spain, the fourth largest economy in the eurozone, grabbed a rescue loan of up to 100 billion euros for its banks in July and now its high borrowing costs are pushing it towards a bigger bailout.
Meanwhile, Catalonia's regional president Artur Mas, boosted by a pro-autonomy demonstration of hundreds of thousands in Barcelona last week, was in Madrid to negotiate a "fiscal pact".
Mas, head of the pro-autonomy Convergence and Union alliance, wants the pact to confer on Catalonia the power to raise and spend its own taxes, a right already enjoyed by the Basque Country.
The northeastern region of Catalonia contributes one-fifth of Spain's economy but feels it gets a raw deal from Madrid, providing much more to the central government than it receives.
Last month, the region had to reach out for a 5 billion euro ($6.3 billion) central government rescue so as to make repayments on its 40-billion-euro debt, equal to a fifth of its total output.
Ahead of Thursday's meeting with Mas, Rajoy left no doubt that he would not accept the proposal.
"This is not the time to create more problems or political instability," said Rajoy, he said in the eve of the meeting.
"As political representatives we have a greater responsibility and I think we have to be very careful of what we do, what we say and also where we're going," the Spanish leader warned.
AFP
