The yield on Spains benchmark 10-year bond fell one basis point to 5.53% as of 10:34 am in Madrid after European leaders ruled out tapping the European Central Banks balance sheet to boost the regions rescue fund during a summit in Brussels over the weekend. The government has aimed for a deficit equal to 6% of GDP this year, down from 9.2% in 2010. Data on the deficit for the first nine months of 2011 will be published sometime this week.
European leaders failure to end the debt crisis risks a vicious circle in which deficit reduction weighs on growth, rendering targets unachievable and triggering more downgrades, eventually leading to default, said Angel Laborda, chief economist at savings-bank foundation Funcas in Madrid. Policy makers must ensure that euro-area nations debt will be repaid even without growth, he said.