Debt pressure raises Spain bailout fears
Spain insisted Thursday it will not need an international bailout to shore up its finances as borrowing costs shot to record highs, raising the stakes three days before a general election.
Markets put pressure on Spain by jacking up rates on its government bonds to euro-era records, near the levels that prompted Greece, Ireland and Portugal to seek help from the EU and International Monetary Fund.
"Spain nears the bailout zone," read an online headline on the left-leaning daily El Pais, reflecting analyst warnings.
The sharp spike in borrowing costs raised pressure on the man expected to win Sunday's election, conservative opposition leader Mariano Rajoy, and forced the outgoing government to try to calm the jitters.
"It is true that the markets are nervous but the sustainability of our debt is beyond all doubt," Finance Minister Elena Salgado told Cadena Ser radio.
Asked whether the rising borrowing costs indicated it was at risk of needing a bailout, she said: "No, at risk of a bailout, absolutely not."
Spain's sovereign borrowing costs rose on Thursday to the highest levels since the introduction of the euro.
Its debt risk premium, a key measure of financial market confidence in a country, hit a euro-era record of 4.99 percentage points.
In a bond sale, the Treasury had to pay a rate of 6.975 percent on its 10-year bonds -- near the 7.0 percent level that is broadly considered unsustainable.
Greece, Ireland and Portugal quickly sought international aid once their bond yields rose that far and similar debt pressures has forced a change of government in Italy.
Spanish government 10-year bonds traded on the secondary market as high as 6.78 percent -- the highest since May 1997 when Spain was still using the peseta.
Salgado defended Spain against what she said were "systemic attacks on our sovereign debt and that of many countries" by the financial markets.
"We would like to pay lower rates because the fundamentals of the Spanish economy indicate that we deserve to," she said.
Polls show the conservative opposition Popular Party is likely to win Sunday's election by a landslide, with voters expected to punish the governing Socialists.
Under Socialist rule, unemployment has soared to 21.5 percent, the highest in the industrialised world, and analysts warn of a return to recession next year.
Opoosition leader Rajoy has promised tough spending cuts to Spaniards already feeling the pain of austerity measures, including to health services and education in some regions.
"We must make cuts everywhere," except in pensions, Rajoy said in an interview published Thursday in El Pais newspaper.
"Spain needs to send a message that it takes the issue of the public deficit seriously."
Analysts said the new government will have to act quickly to reassure investors that it can keep financing itself and bring down its budget deficit.
"Although Spain is in a rather better position than its southern European counterparts, the next government still faces huge challenges and is unlikely to overcome them without outside help," Capital Economics analyst Ben May said in a note.
© 2011 AFP