Spain: Markets Suffer After New Election

Rajoy will take on the reponsibility of tackling Spain's debt problem

Rajoy will take on the reponsibility of tackling Spain’s debt problem

After an election dominated by talks of the eurozone crisis led to the third European government change in three weeks, Mariano Rajoy is set to be the newest leader to try and tackle Spain’s debt.

Rajoy, the Popular Party leader and new Spanish prime minister, has said that there is ‘no miracle’ to restore financial health to Spain. The austerity moves to tackle the debt crisis look to be painful.

Stock fears

On the back of debt jitters, Stocks in Madrid fell 1.8%, in line with other European markets who are suffering the same fate from investors.

Perhaps more disturbingly, the Spanish government’s cost of borrowing rose. Spain’s costs hit the highest ever since the inception of the euro last wek. 10-year Spanish bonds were selling at an interest rate of 6.975% at auction.

The cost of borrowing, or yields on a government’s bonds, are widely watched to see when a state’s borrowing is unsustainable.

The hike in Spain’s bond yields is ominous when coupled with Moody’s recent warnings to France on their borrowing costs. Meanwhile, Italy’s borrowing costs reached an all time high of over 7% last week. Spain and Italy remain borrowing at figures close to 7%, the figure at which other eurozone countries such as Ireland and Portugal have sought bailouts in the past.

Despite efforts from European leaders to jointly solve the debt crisis, markets continue to suffer. German and French shares both fell more than 2%.

London stocks also closed lower.

Spanish woes

The Spanish government is not as heavily indebted as the other states in the eurozone that are struggling to keep themselves out of default, such as Italy and Greece. However, the country has huge mortgage debts after a property bubble burst, accompanied by massive debt held by private firms.

In addition, the country has the highest unemployment rate in Europe. Unemployment is currently being made much worse as the economy continues to lay stagnant.

The election of Mariano Rajoy in Spain marks the third European government to fall in the past 3 weeks. Greece and Italy both elected new prime ministers earlier in the month.

Mario Monti has only recently revealed his new government in Italy, while the new Greek prime minister, Lucas Papademos, is currently in Brussels trying to bring home Greece’s latest bailout tranche.

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