BANK BAILOUT WORRIES
The concerns circling Spain's shaky banks intensified in May when Bankia, the country's fifth-largest lender, unexpectedly announced it would need €19 billion to cover its toxic property loans and assets. A month later, leaders of the other 16 countries that use the euro crafted a rescue package of up to €100 billion for Spain's banks.
Spain still hasn't put a precise figure on how much the banks will need, denying investors a clear picture of the extent of the problem and whether the €100 billion is enough to handle it. Those numbers won't start coming out until September when extensive audits and stress tests of each bank are finalized.
Friday's announcement by eurozone finance ministers that they had agreed the terms of the bailout hasn't quelled markets. That's because the government is ultimately liable to repay the loans. Europe's financial leaders agreed in principle earlier this month to eventually make loans directly to banks and take the Spanish government out of the equation. But that shift is a long way off — a pan-European banking authority would have to be created first and that could take years.
There is also concern that the rules of the bailout mean that eurozone would have to paid back first before other debt is settled. This could leave less money for private investors.
The bank bailout has only made investors more worried about Spain's financial position.
Two-thirds of Spain's government bonds are held by the country's banks, pension funds and insurance companies — that's 50 percent higher than last year. This sharp increase is a sure sign that foreign demand for Spanish debt is falling fast.
Market-watchers are concerned that Spain and its banks are dependent on each other: the government is issuing debt, the majority of which is being bought by its banks, only to use the funds from the sale to prop up its banks so that they can buy more government debt.
Spain has so far this year issued €59 billion in bonds out of a total €86 billion planned for 2012. But as the banks' condition deteriorates, there is growing concern that they won't be able to buy up much more government debt.
GROWING PUBLIC ANGER
Since beating former Socialist Prime Minister Jose Luis Rodriguez Zapatero in the polls late last year, Prime Minister Mariano Rajoy has been introducing successive rounds of austerity measures aimed at preventing the country from being forced into a public finance bailout.
Rajoy's latest set of measures has been his most controversial —a steep hike in Spain's sales tax, and the elimination of one of the 14 yearly paychecks that public servants receive.
Spain has been spared the level of brutal anti-austerity street violence like that seen in Greece, but got a taste of it on July 11 after Rajoy unveiled the new round of cuts and tax rises. Spanish miners and sympathizers, incensed with the seemingly endless cutbacks and tax hikes, clashed with riot police who fired rubber bullets, injuring 22 demonstrators and 10 officers.
The miners said cuts in government mining subsidies will leave them jobless, and many Madrid residents joined in because they believe the problems that the miners face are similar to their economic woes.
Off-duty police and firefighters are starting to join in anti-austerity protests by public servants. Officers are prohibited from wearing their uniforms while protesting, but deck themselves out in white shirts to identify themselves, and the firefighters hold their helmets.
If future protests come with escalating violence, that would only make investors more nervous about Spain.
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.