The announcement will put to the test investors’ willingness to continue financing Spain’s debt, especially with the ECB waiting in the wings with its bond-buying program.
 
The country also announced 43 measures to boost the country’s economic growth that go even further than the European Commission’s recommendations for restructuring.
 
Spain plans to sell treasury bonds to cover 41% of the amount it plans to borrow and bonds to cover another 51%. This will increase the amount of short debt in circulation and will shorten the average maturity of Spanish debt to 5.8 years by the end of 2012.
 
Spain’s budget minister has developed €13 billion in tax hikes and spending cuts for 2013 but the disparity in GDP forecasts has become a sort of wild card. If GDP contracts by .5%, the cuts will reduce the deficit by €7 billion.
 
But economists forecast a contraction almost three times worse—1.3%. This would force more drastic cuts and would also circumvent the pension increase currently planned. Rajoy may be forced to accept the ECB offer to avoid a 34% skyrocket in interest rates.
 
Time is running out for Rajoy. The end of October will see €5.3 billion worth of floating rate interest notes and a €15 billion euro bond come due. As strong as it would be for Spain to be able to avoid tapping the rescue fund, that doesn’t seem to be a realistic probability.

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