Rajoy Says Spain at Risk of Being Shut Out of Markets

Spain faces being shut out of financial markets unless lawmakers back his proposed deficit cuts, Prime Minister Mariano Rajoy told Parliament today.

“There is a serious risk that they don’t lend to us or that they lend to us at astronomical prices,” he told lawmakers in Madrid. “All the measures we are currently taking are to lift us out of a pit.”

The extra yield investors demand to hold Spanish debt instead of German bonds widened to a euro-era record of 5.07 percentage points amid investors’ concern about banks’ bad assets and a possible Greek exit of the euro area.

The yield on Spain’s benchmark 10-year bond rose 13 basis points to 6.48 percent, compared with less than 5 percent early March, before Rajoy’s People’s Party government said the country will miss its 2012 budget deficit target.

Euro finance ministers have since agreed to a new goal for Spain this year, at 5.3 percent of gross domestic product instead of 4.4 percent, as the nation faces its second recession since 2009. The shortfall last year was 8.5 percent, compared with a 6 percent target.

In exchange, Rajoy has pledged to cut the deficit to the EU limit of 3 percent next year, as initially planned. His 2012 budget presented in March included the deepest austerity measures in more than three decades, raising taxes and reducing spending to save around 27 billion euros ($34 billion).

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.