The election of a new conservative government failed to curb mounting 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 his centre-right People's Party (PP) won the biggest victory for 30 years in Sunday's election. 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.
With Spain at the heart of a euro zone crisis that is escalating by the day, 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.
Rajoy has to hurry with the measures. The market will not give him much time, said a senior Spanish banker, who asked not to be named.
Fitch ratings agency said the incoming government must outline additional measures to cut Spain's deficit.
It must positively surprise investors with an ambitious and radical fiscal and structural reform programme, it said in a statement.
Jo Tomkins, a strategist at consultancy 4Cast, said borrowing costs were at eye-popping levels.
The lack of relief on the back of Sunday's election speaks volumes despite what was a very solid majority win for 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 said.
The jump in Spain's short-term borrowing costs has pushed up what banks pay for their funding, piling pressure on its struggling financial sector as well as cash-strapped ordinary people and businesses unable to access loans.
Investors had hoped before the election for a clear victory for the People's Party, which promised tough measures to tackle the worst economic crisis in decades.
But with no detail so far on Rajoy's plans, the election rout of the ruling Socialists has signally failed to calm jumpy markets as the euro zone crisis gains momentum in the absence of concerted European efforts to confront it.
Italy and Spain's borrowing costs are close to levels that forced Greece and Portugal into an international bailout, putting the euro zone's third and fourth economies in the eye of the storm. Rescuing them would overcome Europe's existing defences.
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 as late as 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 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 overwhelming victory.
Before the elections, Rajoy pleaded with markets to give him preferably more than half an hour to get his cabinet and programme in place.
Whatever the new government does, many analysts say the euro zone crisis is now systemic and beyond the control of individual countries.
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.
It's not what Spain does, it's what Europe does, said Bill Blain, senior director at Newedge brokers.
Analysts said markets had priced in a Rajoy victory with an absolute majority and were now looking for concrete policies.
Antonio Hormigos de la Casa, CEO of Mirabaud Asset Management in Spain, said the PP did not want to appear to be reacting to outside pressure to announce either its policy or the name of the new economy minister for fear of burning him before he took power.
The new government plans three reforms as soon as it assumes power, Expansion newspaper reported, citing PP sources.
The measures would 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 rigid labour market, the paper said.
(Additional reporting by Paul Day, writing by Barry Moody, editing by Angus MacSwan)