Europe is bracing for a double-dip recession as the eurozone’s third and fourth biggest economies, Italy and Spain, brought the debt crisis back to the market on Tuesday.
Spain’s situation is the most worrisome as the yield on the country’s bonds kept rising on Tuesday. This despite a package of austerity measures introduced by the Spanish government last week—and further expanded on Monday to improve its ability to cut debt and spark economic growth. The Spanish government announced a €27-billion ($35.5 billion) package of cuts and tax hikes last week, followed by a €10-billion ($13 billion) cut in education and health spending, and an accelerated privatization of government-controlled companies on Monday.
None of those moves have been able to calm the markets, prompting a mass sell-off of Spanish bonds on Tuesday. The Bank of Spain predicts the country’s economy, more than twice the size of Greece, Ireland and Portugal combined, will shrink by 1.7 per cent this year in a country where unemployment is at an astronomic 23 per cent. A possible Spanish bailout would likely reverberate way beyond Europe’s borders, which is why European and Spanish authorities made a point on Tuesday to dissuade rumours that a rescue-plan for Spain is in the works.