A landslide election victory by the conservative People's Party did nothing to ease market pressure on Spain on Tuesday with Madrid forced to pay the highest interest in 14 years on a sale of government debt.
The auction of short term paper was seen as the first test of whether Prime Minister-elect Mariano Rajoy could reassure investors after sweeping to power on Sunday in the biggest election victory in 30 years. The answer was a resounding no.
The average yield on a three-month bill more than doubled to just over 5 percent from almost 2.3 percent a month earlier. The interest paid on a 6-month bill also soared to over 5 percent from over 3.3 percent paid in October.
The final average yields on both bills leapt more than 70 basis points even from secondary market levels on Monday afternoon.
The dismal performance in the auction piled pressure on Rajoy, who does not take power until just before Christmas, to give some detail on his austerity plans -- something he refused to do on Monday night to the frustration of markets.
Borrowing costs are at eye-popping levels, said Jo Tomkins a strategist at consultancy 4Cast.
The lack of relief on the back of Sunday's election speaks volumes despite what was a very solid majority win for PM-elect Mariano Rajoy. No doubt about it he will have his work cut out, but a bold if not brazen message could be what is needed to shore up confidence in Spain, she added.
Investors had hoped before the election for a clear victory for Rajoy's People's Party (PP) which promised tough measures to tackle the worst economic crisis in decades.
But with no detail so far on his plans for the battered economy, the election rout of the ruling Socialists has had no impact on markets.
Spain's borrowing costs are still close to levels that forced Greece and Portugal into an international bailout and Madrid remains at the centre of the euro zone debt maelstrom.
Rajoy showed no sign of hurrying after his victory on Sunday, saying he will keep impatient markets and edgy Spaniards guessing until he is sworn in just before Christmas.
The PP is not expected to take power formally until around December 20, under an agonisingly long transition required by Spanish law.
Rajoy says he will hold his first cabinet meeting on December 23, and has resisted pressure to at least give some crumbs to nervous investors on precisely what he intends to do to cut the deficit and restore market confidence.
The PP's manifesto was short on policy detail, as Rajoy sat back and relied on anger over a grinding crisis that has put one in five Spaniards out of work -- the highest rate in the European Union -- to rocket him to the biggest election win in 30 years.
Whatever the new government does, many analysts say the euro zone crisis is now systemic and beyond the control of individual countries and needs coordinated European action.
It is worrying that Spain's fate in the coming weeks is not in its own hands. It hinges critically on decisions taken by EU leaders who, time and again, have shown themselves to be inadequate to the task, said Nicholas Spiro of Spiro Sovereign Strategy.
The new government plans to introduce three reforms in its first cabinet meeting, Expansion newspaper reported on Tuesday citing PP sources.
The measures will tighten budgetary limits on Spain's over-spending regional governments, force banks to acknowledge losses on toxic real estate assets on their balance sheets and speed up reform of the country's rigid labour market, the paper said.
Rajoy, offered close co-operation by German Chancellor Angela Merkel in a phone call after his victory, says he will also wait until just before Christmas to name the new economy minister.
Before the elections, he pleaded with markets to give him preferably more than half an hour to get his cabinet and programme in place.
Italy and Spain, the euro zone's third and fourth largest economies, are paying investors close to 7 percent interest to hold benchmark 10-year bonds, a rate considered unsustainable over any length of time.
Existing euro zone defences would be overwhelmed if either country was forced in to a bailout like those granted to Greece, Ireland and Portugal.
Once he does take power, unlike many of his predecessors, Rajoy will have a free hand with an absolute majority that enables him to govern without making deals with parties in Spain's autonomous regions to pass unpopular measures.
But the austerity measures he will take could make things worse before they get better as Spain slides towards the second recession in two years and the dole queues of 5 million unemployed are likely to get longer.
Many Spaniards expect renewed protests on the streets as his measures begin to bite.
($1 = 0.7425 euros)
(Additional reporting by Paul Day, writing by Barry Moody)