Investors Show Confidence In Spain, Italy

Spain and Italy have held their first bond auctions of 2012. Spain raised double its target amount, at interest rates a full point or more lower than last month. Italy did somewhat the same. One analyst said the painful austerity programs appear to be bearing fruit.

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Now in Europe, two governments are breathing a little easier. Spain and Italy held government bond sales this week. And despite investor skittishness about high public debt in those two countries, both governments raised the money they needed.

STEVE INSKEEP, HOST:

And they sold their bonds at lower interest rates, so their borrowing costs are lower. From Madrid, reporter Lauren Frayer has more.

LAUREN FRAYER, BYLINE: Spain raised double its target amount, at interest rates a full point or more lower than last month. Stocks and the euro soared on the news. Gayle Allard, an economist at Madrid's IE Business School, says it's a sign of investor confidence in Spain's new government, run by the conservative Popular Party, or PP.

GAYLE ALLARD: Spain has turned a corner, as has Italy. You know, the victory of the PP and a really serious, painful austerity program is bearing fruit.

FRAYER: That austerity is a $20 billion package of spending cuts and tax hikes, passed by Spanish parliament this week. It includes pay and hiring freezes for public workers, and tax hikes on property and income.

Prime Minister Mariano Rajoy reneged on a campaign promise not to raise taxes. But then the deficit turned out to be two points higher than expected. He blames the outgoing socialists and also Spain's regions, which don't collect most taxes but have a habit of spending quite freely. It's something the government is cracking down on now, says Allard.

ALLARD: The government can really pressure them hard, to cut. And there's so much room to cut, in the different levels of Spanish government. There is so much inefficiency and waste.

FRAYER: Spain isn't out of the woods yet, though. It still has to tackle labor reform. The jobless rate here tops 23 percent - the highest in Europe.

For NPR News, I'm Lauren Frayer in Madrid.

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