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Jittery Investors Push Up Interest Rates on Spanish Bonds

Spain is facing the threat of being sucked in to the maelstrom of the debt crisis as interest rates soar.
By Aryeh Ben Hayim
First Publish: 7/19/2011, 5:44 PM / Last Update: 7/19/2011, 9:45 PM

The Spanish government looked on in frustration as the interest on Spanish bonds climbed to their highest levels since Spain abandoned the Peseta and joined the euro.

Spain's government believes it has done all it can to demonstrate its determination to reduce the deficit but it is essentially hostage to outside events. As long as investors believe that the European Union has not found a credible solution to the debt crisis countries like Spain and Italy will be vulnerable.

Matters now hinge on the emergency meeting scheduled for Thursday in Brussels.

While Spain's feeling of frustration is essentially correct it does have weak points in its arguments. The fears expressed about the solvency of the country's regional governments are being sustained. With the ouster of the Socialists from Castille-La Mancha the new Popular Party government found a huge debt and overstaffed government companies. Drug companies claim that they are owed billions of dollars by the regional governments that are in charge of healthcare.

Therefore it is not enough for the central government to get the financial ship in order.