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This article explains why the UK which has a worse debt situation than Spain is able to borrow money at better terms. The reason is because the UK can borrow money in its own currency and Spain has to borrow in the euro. Actions taken by the ECB to raise interest rates will make it more difficult for Spain to recover from 21% unemployment.
This article produced many comments but those who suggested that speculation was partly the cause of falling prices for Spanish debt were the most insightful. Speculators are using CDS's to bet on default. Changes in the CDS spreads creates market anxiety which puts further pressure bond prices. Most economists do not consider the link between speculation and prices. European regulators understand this and they are taking actions against the use of naked CDS's which do not require ownership of the security being protected.
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