It’s back

“SPAIN is facing an economic situation of extreme difficulty, I repeat, of extreme difficulty, and anyone who doesn’t understand that is fooling themselves.” Thus Mariano Rajoy, Spain’s prime minister, as he tried to shore up support today for an austerity budget presented last week.Mr Rajoy has plenty of evidence to rally the faint-hearted. A bond auction today raised €2.6 billion ($3.4 billion), well below the €3.5 billion maximum target. The average yield on the five-year bonds auctioned this morning rose by almost a full percentage point compared with the previous auction at the start of March. That led other euro-zone sovereign debt downward, too.Spain’s predicament also came up during today’s press conference with Mario Draghi, the president of the European Central Bank, after the ECB agreed to hold interest rates at 1% for another month. Asked what to read into rising Spanish and Italian yields, Mr Draghi said that the issue was less “a symptom of market uneasiness but rather market attention upon fundamentals”. Rough translation: get on with sorting out the public finances.Mr Rajoy deserves a bit of sympathy for the fact that Spain is so much in the spotlight. He has enacted some useful reforms in his three months in office, including on labour markets and the banking system. And he was unlucky that Mario Monti, Italy’s prime minister, came along to steal investors’ hearts just before he took power. But a unilateral move in March to ease Spain’s 2012 budget-deficit target (never mind the economic rights and wrongs of pursuing a bit less austerity) was his own doing, and refocused attention on the country.The question now is whether anxiety turns to panic again. The problem is that it is hard to see obvious triggers that would greatly boost sentiment in the short term. For debtors, the politics of austerity will only get trickier: even Mr Monti’s halo is starting to slip. The euro-zone economy is stagnant: a purchasing managers’ index release today showed another contraction in March, all but ensuring that the zone is in technical recession.As for creditors, euro-zone governments failed to impress with a half-hearted decision to increase the bloc’s bail-out funds last week. And the ECB has little room for manoeuvre. Mr Draghi signalled at his press conference that any talk of unwinding the ECB’s unconventional stimulus measures, which include the provision of €1 trillion of three-year liquidity to euro-zone banks in December and February, was premature. But another dose of liquidity is not on the cards. With few catalysts for good news and lots of reasons to feel nervous about the euro zone’s prospects, Mr Draghi’s assessment looks off-beam. Of course markets are uneasy.