Forex News – Spain elections aim to restore investor confidence

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Spanish bond yields moved off euro-era highs today after surging to dangerous levels on Thursday following a government bond auction. Spanish Treasury paid a 7% yield to sell a new 10-year government bond, which was the highest level since the creation of the euro.

Spain needs to regain the confidence of its people as well as global investors. As it grapples with a burst housing bubble, a 21% unemployment rate and a budget deficit that stood at just over 9% of gross domestic product last year, Spain urgently needs to curb the rise of its financing costs so as not to head down the same path as Greece and risk having its debt spiralling out of control.

But just as Greece, and recently Italy have done, Spain is set to put in place a new government. The only difference with Greece and Italy is that the new leader will be elected, unlike Lucas Papademos and Mario Monti.

The Spanish people are voting this Sunday to elect a new government with a clear mandate for change, at a time when political turmoil in Greece and Italy has brought a sharp escalation of Europe’s debt crisis.

Sunday’s elections bring the opportunity to shore up confidence in one of the euro zone’s most indebted economies after the collapse of governments in Italy and Greece earlier this month sent investors running from the euro and sent borrowing costs soaring for even some of the highest-rated members of the euro zone, such as France.