SPRINGHILL GROUP: Spain Borrowing Costs Ease, Catalonia Unhappy

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BY KATARA KUMAR

• SPRINGHILL GROUP Spain Borrowing Costs Ease,
  Catalonia Unhappy

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Springhill Group - Spains borrowing costs on its
10-year government bonds fell to the lowest level
since January on Thursday.
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At its latest debt auction raised 4.8 billion
euros and saw strong demand from investors for
the bonds maturing in three and 10 years time.
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Madrid has been able to more easily sell its
bonds at lower rates of interest since the
European Central Bank announced its bond-buying
plan.
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Trader Ignacio Blanco with Bankinter said Over
the last month and a half bond interest rates are
down more than two percent, since Draghi spoke at
the end of July. There was strong demand in the
days before the auction and today too. They were
buying bonds before, they continued to buy today,
and the initial operations after the auction were
good.
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Many analysts have warned Spains borrowing costs
could skyrocket to unsustainable levels unless
Rajoy asks for an international bailout, at which
point the ECBwould start buying Spanish bonds.
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The countrys economic crisis is exposing deep
fault lines with the wealthy, but heavily
indebted, region of Catalonia calling for tax
breaks.
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Catalonia, which is in northeastern Spain,
generates one fifth of the countrys economic
output and is home to 16 percent of Spaniards.
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More than half of Catalans say they want a
separate state, and hundreds of thousands marched
in Barcelona last week the biggest such show of
separatist fervor.
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The upsurge in Catalan separatism is founded on a
conviction that Madrid is draining the region
financially.
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The central government collects most taxation
payments then redistributes them to Spains 17
self-governing regions, which run their own
schools and hospitals. Each year Catalans say
they pay 16 billion euros more in taxes than the
regional government spends.
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The regions debts have made the Madrid
governments task of balancing the budget more
difficult.
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Rajoy has threatened to intervene in regions that
cannot control their budgets. Catalonia is likely
to miss its deficit target this year and has had
to ask Madrid for a five billion euro bailout to
meet its debt redemptions.