The start of 2012 has seen some optimism from the eurozone. The Spanish government successfully raised about $12.8 billion (10 billion euros) on Thursday morning as European banks bought the Spanish debt at lower interest rates than on previous occasions. And demand was strong. Italy also successfully raised billions of euros in government bonds. Stock markets around Europe rose on the news, though they then lost gains after weak U.S. jobless and retail sales data was released.
Thursday’s news from Spain was as good as it was unexpected. It convinced investors to lend Spain $12.7 billion (10 billion euros) at a lower interest rate than they had to pay last time around. Spain had a change of government at the end of last year - with Mariano Rajoy’s center-right People’s Party taking over from the socialists. Thursday’s bond auction came a day after parliament approved the new government's first austerity measures.
Pedro Schwartz, economics professor at San Pablo University in Madrid, says this has boosted confidence.
"The new government has a very large majority in parliament, and it’s taken some very harsh measures to cut the deficit," said Schwartz. "It’s cutting some expenditure but mainly increasing taxes. The main thing has been an increase in income tax, and in the tax on real estate, and also on capital gains... it's been pretty harsh.”
Spain has the highest unemployment rate in the European Union but was successful in raising large amounts of money through the sale of bonds on Thursday. Michael Leister, a strategist at DZ Bank in Frankfurt, Germnay, says one reason for the success may be the European Central Bank lending hundreds of millions of dollars very cheaply to banks all across Europe at the end of December. Leister thinks that money is now finding a home in government bonds that are still paying quite high interest rates.
“So indeed there hasn’t been a marked, or pronounced shift in confidence with regards to these issuers, but rather it is the high interest rates that [are] attractive for all these banks that have received huge amounts of cash from the European Central Bank," said Leister.
Thursday’s bond auction is the first of many this year. Experts estimate Spain needs to raise some $227 billion (177 billion euros) this year alone. If there are any more shocks in the eurozone - for example if Greece defaults on its debts - then nervousness may creep back. And lenders might become more reluctant again.
Spanish Government Successfully Raises Billions of Euros
