The Treasury is now paying over 4% for its ten-year bond, when in January it only required 3%. The market is closely monitoring Feijóo's promise to audit public accounts.
The Treasury is now paying over 4% for the Spanish ten-year bond, compared to the 3% it needed in January. According to merca2.es, the rising cost of debt coincides with Alberto Núñez Feijóo's promise to audit public accounts if he reaches La Moncloa.
The leader of the PP has reiterated this idea during the pre-campaign and points to the General Intervention of the State, an agency that has depended on the Ministry of Finance. If the review finds a greater discrepancy than declared, the Treasury will have to finance itself in a market that no longer views Spain with the same tolerance as nine months ago.
Official data already points to problems. The AIReF considers the European spending rule to be breached, and the Bank of Spain agrees with this diagnosis. According to the agency led by AIReF, in a scenario of sustained tension, interest spending would rise to between 67.2 billion and 73.2 billion euros by 2030, compared to the 58.3 billion euros in the baseline scenario.
This annual overcost, of between 9 billion and 15 billion euros, would have to come from other items, such as social spending, investment, or defense.
David López Salido, General Director of Economics at the Bank of Spain, warns in his monthly report of the contagion risk:
“The deterioration of public finance prospects in several advanced economies could raise the yields of their sovereign debt and tighten financing conditions in Spain.”
According to the report's text, Spain appears as a recipient of this contagion rather than a source. Jeff Mueller from Morgan Stanley argues that contagion from France would raise risk premiums across the rest of Europe, including in economies with stronger fundamentals like Spain and Portugal.
The effect would reach the stock market through two channels. The first is the banking sector of the IBEX, which holds a significant part of its portfolio in sovereign debt. The second is the financing cost for listed companies, which is referenced to the ten-year bond with a differential, meaning that each increase of 50 basis points reflects in the earnings of companies with higher net debt.
The Spanish risk premium is well below the highs of July 2012, when it exceeded 600 basis points during the bailout. Precedents also weigh heavily: in 1996, the government of José María Aznar revealed the so-called invoices in the drawers, and the 1995 deficit closed at 6.79%, compared to the 5.87% declared by the government of Felipe González.
In 2004, Pedro Solbes revealed that the 2003 deficit had closed at 1.87%, above what was declared. In 2012, Cristóbal Montoro disclosed that the 2011 deficit reached 9%, compared to the 6% committed by Elena Salgado, and the risk premium tightened in the following months.
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