Spanish Bonds Slump as Marchers Plan Further Protests

Catalan President Artur Mas
Catalan President Artur Mas told lawmakers in Barcelona he would dissolve Parliament in the coming days and hold an election on Nov. 25, two years after he defeated the regional Socialist party with pledges to wrest greater autonomy from Madrid. Photographer: Josep Lago/AFP/Getty Images

Spanish bond yields climbed the most this month as a second night of violent protests loomed amid sparring over the police response to clashes in Madrid.

Spain’s 10-year benchmark yield rose above 6 percent, approaching the levels seen before European Central Bank President Mario Draghi offered to buy struggling nations’ debt. Prime Minister Mariano Rajoy told the Wall Street Journal in comments confirmed by his office that he would “100 percent” seek a rescue if borrowing costs stayed “too high.”

The clashes in Madrid preceded a general strike in Athens today to protest austerity measures in ground zero of Europe’s financial crisis. Police fired tear gas near the Greek Parliament after protesters threw fire bombs.

Rajoy’s efforts to restore investor confidence suffered a new setback yesterday when Catalan President Artur Mas called early elections to push for “self-determination” for the country’s largest region. His gambit added a new front to Rajoy’s battles to push the deepest budget cuts on record with unemployment at 25 percent and the economy in recession.

“The negative newsflow on Spain is gaining momentum,” said Michael Leister, a fixed-income strategist at Commerzbank AG in London. “The protests will definitely add to the pressure, but negative news regarding the regions pose a bigger risk.”

The slump in Spanish bonds sent the yield to 6.06 percent, up 32 basis points, at 5:55 p.m. in Madrid. The benchmark Ibex stock index slid 3.9 percent.

Anarchist Rally

Thousands of protesters gathered around the Parliament in Madrid late yesterday to oppose budget cuts and tax increases Rajoy has pursued since coming to power in December in breach of his campaign pledges. The anarchist union CNT has called a demonstration for 7 p.m in Madrid. Organizers urged allies today to join the march via Twitter and Facebook.

Economy Minister Luis de Guindos is set to present tomorrow a reform package pledged to European peers and Budget Minister Cristobal Montoro announces the 2013 budget.

Spain, which got a 100 billion-euro ($128 billion) bailout for its banks in June, is trying to cut the deficit to 4.5 percent of output next year from 6.3 percent in 2012 even as the economy is projected to keep shrinking. As part of those efforts, Rajoy said yesterday he will create an independent fiscal authority, following European recommendations.

‘Illegal’ Protest

Opposition politicians accused the police of overreacting to the protests. Interior Minister Jorge Fernandez Diaz said the demonstration was an “illegal” effort to occupy Parliament. People’s Party deputy leader Maria Dolores de Cospedal compared the demonstration this week to an attempted coup in 1981 when civil guard officers stormed Parliament.

Socialist lawmaker Eduardo Madina said police used “excessive” force and Cayo Lara, head of the United Left party, called for an investigation into the police response as he said video images indicated police may have infiltrated the crowd. Officers acted “splendidly,” Diaz said.

Rajoy, who is in New York at the United Nations this week, is also facing criticism from European peers over his foot-dragging on whether to seek a bailout that would allow the ECB to buy the nation’s bonds. Rajoy made his debut at the UN General Assembly yesterday, speaking to an almost empty room at 9 p.m. between speeches from the leaders of Uganda and Timor Este. His 14-page speech didn’t mention the crisis.

Rajoy’s ‘Respect’

The premier hasn’t responded to the protests or to the Catalan call for early elections except to express “respect” for the regional government in Barcelona. Mas’s move to call elections just two years after coming to power follows a meeting with Rajoy last week when the premier rejected his proposal to let the region keep more of its tax revenue.

Catalan nationalists are pressing for more autonomy as austerity measures erode their willingness to subsidize poorer Spanish regions. Locked out of debt markets and unable to meet redemptions, Catalonia has tapped the central government’s regional bailout fund for 5 billion euros. The northern region, which had a parliament as early as the 13th century and uses its own language, accounts for a fifth of the Spanish economy and is home to some of its biggest companies.

“Spain is increasingly slipping out of his hands,” opposition Socialist leader Alfredo Perez Rubalcaba said of Rajoy today in Parliament. “There are clear fractures in Spain and the one I’m most worried about is social fracture.”

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