Rajoy attacked by central bank over fiscal plan

 
Ben Southwood
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THE crisis in Spain intensified yesterday, as ministers faced attacks from within and outside government, though a bond auction was successful, and yields edged down.

Spanish Prime Minister Mariano Rajoy was undermined by Spanish central bank governor Luis Maria Linde, who rubbished his budget plans, calling the growth and tax revenue estimates overly optimistic.

And Spain’s financial minister Luis de Guindos faced student protests when he spoke at the London School of Economics last night. Linde went on to call for further steps to make sure the government hits next year’s deficit target of 4.5 per cent of GDP.

This came as most bond yields fell, with investors hoping for a bailout, despite Rajoy’s promise on Thursday that this weekend, at least, would not see an official request for aid.

Yields on bonds set to mature in 2014 slipped to 3.28 per cent at yesterday’s auction, from the 5.20 per cent seen at the last sale, in mid July. But 2015 bonds edged up from 3.85 per cent in July to 3.96 per cent yesterday.

Analysts put the falling yields down to an expectation of an eventual bailout – in spite of Rajoy’s continual delays. “There is a natural demand [for Spanish bonds] given that at some point Spain will request a sovereign bailout and the ECB...will buy short-dated bonds,” said Nick Stamenkovic at Ria Capital Markets.

But intervention may come even without a full bailout – according to Reuters sources the ECB is considering supporting Spanish bonds through an insurance scheme that would guarantee the first 20 to 30 per cent of bonds.