Spain Borrowing Costs Ease, Catalonia Unhappy

Spain’s borrowing costs on its 10-year government bonds fell to the lowest level since January on Thursday.

At its latest debt auction raised 4 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. Madrid has been able to more easily sell its bonds at lower rates of interest since theEuropean Central Bank announced its bond-buying plan.

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.”

Many analysts have warned Spain’s borrowing costs could skyrocket to unsustainable levels unless Rajoy asks for an international bailout, at which point the ECBwould start buying Spanish bonds. The country’s economic crisis is exposing deep fault lines with the wealthy, but heavily indebted, region of Catalonia calling for tax breaks.

Catalonia, which is in northeastern Spain, generates one fifth of the country’s economic output and is home to 16 percent of Spaniards. 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. The upsurge in Catalan separatism is founded on a conviction that Madrid is draining the region financially.

The central government collects most taxation payments then redistributes them to Spain’s 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. The region’s debts have made the Madrid government’s task of balancing the budget more difficult.

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.