Rajoy fights Spanish turmoil

Investors were also concerned by a statement this week from the finance ministers of Germany, Holland and Finland, who said plans to move bad bank assets off government books would not apply to “legacy assets” – apparently dashing Spain and Ireland’s hopes of being freed of billions of euros of debt incurred in bailing out their banks.

Mariano Rajoy

Mariano Rajoy will on Thursday attempt to stave off a backlash from financial markets by announcing budget plans for next year, as the Spanish prime minister faces the most testing 48 hours of his nine-month-old tenure.

As protesters descended on Spain’s parliament for a second night, Mr Rajoy called on Spaniards to ignore “short-term interests”. His government is also preparing to unveil a new reform programme and the results of a banking stress test.

The political turmoil in Spain triggered a sell-off of European shares, as investor concerns mounted about the eurozone’s fourth-largest economy. Spain’s Ibex share index, which had rallied over the summer, ended down 3.9 per cent and the FTSE Eurofirst 300 index dropped 1.7 per cent. The euro gave up its gains over the past two weeks, falling to $1.28.

The financial pressures on Mr Rajoy’s government have been intensified by a constitutional crisis brewing over the Catalonia region, which called snap elections this week that could hasten a move toward independence.


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