'Nothing on table' as Spain, Italy, Cyprus strains rise: EU

2nd August 2011, Comments 0 comments

The European Commission said Tuesday that debt rescue planning for Spain, Italy and Cyprus was not on the cards, despite bond yields for the big two hitting the highest levels since the euro was created.

"The question of a programme of emergency aid is certainly not on the table," said Chantal Hughes, speaking for Economic Affairs Commissioner Olli Rehn, after Spanish Prime Minister Jose Luis Rodriguez Zapatero delayed a holiday departure to keep tabs on growing economic concerns.

That came after the difference in borrowing costs for Spain and Italy, against benchmark Germany, rose sharply in Tuesday bond trading.

The benchmark Spanish 10-year government bond was yielding 6.326 percent in morning trading, up sharply from 6.180 percent on Monday, while Italy's rate rose to 6.165 percent from 5.988 percent.

Cyprus, meanwhile, is struggling with a rising public deficit about to get much worse with billions of euros in damage caused by a blast at a military base and banks over-exposed to neighbouring Greek debt.

Hughes, standing in for economic affairs commissioner Olli Rehn's regular spokesman, said there was nothing drawn up if bailouts were required. The European Union executive is a central part of a "troika" alongside the European Central Bank and the International Monetary Fund in all eurozone bailout planning.

Economists say problems for Italy and Spain, as the region's third and fourth biggest economies respectively, could wreck the euro, constructed in 1999.

There are also fears that these countries may not now want to finance their bailout commitments later this year for Greece.

On that point, Hughes said an arrangement existed that would allow Madrid and Rome to be helped to meet their obligations.

"If any country is faced with higher funding costs ... when the next tranche of aid would be paid out ... there is a mechanism in place to help compensate them," she said.

Eurozone governments borrow on commercial markets the money they then lend to the likes of Greece but at a July 21 eurozone summit, leaders also agreed to lower the rates they charge those countries bailed out.

Hughes said experts at the commission were "monitoring very, very closely" the return of euro debt fears after the US debt crisis commanded all the recent attention.

She said EU authorities have "full confidence" that the Spanish and Italian authorities were "taking the necessary action" with programmes of economic reform and fiscal consolidation.

There was "no reason to think that the situation had changed in the last few days," she added.

The Bank of Cyprus on Monday urged government action to prevent the eurozone member from following Greece, Ireland and Portugal in seeking an EU bailout, after the blast that claimed 13 lives and knocked out a key power plant on July 11.

"There is no question of an emergency aid plan for Cyprus being on the table," Hughes added, while offering "the full support of the commission."

© 2011 AFP

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