Rain in Spain

The Spanish situation is rapidly getting worse. Rajoy has stepped up the rhetorics and the blame game will enter a new phase. Investors are losing confidence in Spain. Expect the CDS prices to move further, as Spain (and Italy) now receive the full attention from “confused” investors. From Bloomberg.

“Without a doubt, a good part of Spain’s future is at stake,” Rajoy told senators yesterday, as he urged regional governments to contribute to spending cuts. “The problem is that the markets can lend or decide not to lend.”

Rajoy has stepped up his rhetoric in the past week as he seeks to persuade Spaniards to accept spending reductions and tax increases as a less painful alternative to a bailout. His three-month-old government is struggling to convince investors it can reduce the deficit by a third this year and crack down on overspending by regional administrations.

As Spain’s regions suffer from a slump in tax revenue while most are locked out of capital markets, Esperanza Aguirre, the president of the Madrid region, yesterday proposed handing back responsibilities such as health and education to the central government. Aguirre, once a potential rival to Rajoy for the PP leadership, said the move would save 48 billion euros ($63 billion) by avoiding overlap.