The Spanish government was under increasing
pressure Friday after an austerity package worth 65 billion euros (80
billion dollars) failed to ease borrowing costs and the finance
ministry issued a gloomy economic forecast for 2013.
The spread measuring the difference between Spanish and German 10-year bonds reached the record high of 600 basis points. The yield on Spanish bonds stood at 7.2 per cent. That was the highest since the creation of the euro, and well above the 7-per-cent level which is regarded as unsustainable.
The Ibex 35, the main index of the Madrid stock exchange, meanwhile fell by more than 3 per cent.
The government improved its economic forecast for this year, saying the economy would only shrink by 1.5 per cent, down from an earlier forecast of 1.7 per cent.
However, the government said the economy would contract by 0.5 per cent in 2013. It had earlier expected growth of 0.2 per cent.
The economy will not turn to growth until 2014, when it will grow by 1.2 per cent, Finance Minister Cristobal Montoro said.
Unemployment will grow this year to 24.6 per cent, slightly more than expected, according to Montoro. The jobless rate in the first quarter was 24.4 per cent.
The eastern Valencia region meanwhile became the first among Spain's highly indebted semi-autonomous regions to seek a financial rescue from a newly created 18-billion-euro regional liquidity fund.
Hundreds of thousands of people marched on Thursday in 80 cities against an austerity package approved by parliament hours earlier, saying it paralyzed the economy while failing to create jobs.
The package was approved only with the votes of Prime Minister Mariano Rajoy's conservative People's Party (PP), which has an absolute majority in parliament.
It includes a rise in value added tax, scrapping public employees' Christmas bonuses and tax rebates to mortgage holders, as well as cuts in unemployment benefits.
The budget cuts are aimed at trimming the budget deficit from 8.9 per cent in 2011 to 6.3 per cent this year and to 2.8 per cent by 2014. That has been agreed with the European Union, which has pledged up to 100 billion euros in aid to Spain's ailing banks.
Protests against the measures continued on Friday, with hundreds of public employees blocking traffic in several parts of Madrid.
Thursday's rallies turned violent in Madrid, where protesters set garbage containers on fire and police fired rubber bullets into the air.
Fifteen people were detained, according to figures given by police on Friday. Thirty-nine people, including two police officers, were given medical treatment for slight injuries.
Organizers vowed to call more protests. Trade unions are also considering a second general strike to follow an initial one in March.
The government maintains it has no other choice but to cut spendingto stabilize the economy and ward off an international bailout.
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