Spain has become the latest country caught up in the government debt crisis crippling Europe, sparking fears that it'll join Greece, Portugal and Ireland and go asking for an international bailout.
Over the past week, investors have grown increasingly wary of buying Spain's debt on the international bond markets, sending the country's cost of borrowing to highs not seen in nearly four months and its stock markets plummeting.
In reality, worries about Spain have always been there. Bond market pressure on Spain began seriously to mount in 2011 as the country's deficit and unemployment rocketed. But late last year, two factors helped ease this pressure. First, Mariano Rajoy's right-wing and pro-austerity Popular Party took over the reins after winning general elections in November. But of much greater impact was the European Central Bank's decision to flood the region's financial system with more than (EURO)1 trillion ($1.3 trillion) in bargain loans to banks. The injection spurred lenders to snap up battered government debt, driving Spanish borrowing costs down. However, the effects of the cheap loans across Europe have since dissipated and Spain is taking the brunt of market distrust.
Rajoy's administration is faced with two big tasks: resurrect an economy with 23 percent unemployment through job creation while trying to reduce its deficit to satisfy EU overseers and international investors via austerity measures. To help them achieve these, the government has already imposed draconian spending cuts as well as introducing labor market and banking sector reforms.
