Spain distances itself from crisis-hit Portugal

24th March 2011, Comments 0 comments

Spain rushed to distance itself Thursday from Portugal's deepening economic woes, saying markets have recognised Madrid's tough reforms.

Portuguese Prime Minister Jose Socrates resigned Wednesday after the opposition rejected his plan for more spending cuts and tax hikes, heightening fears Portugal will need an international rescue.

Spain, which has enacted stringent budget cuts and unpopular labour and pension reforms so as gain market confidence, is determined not to be the next eurozone domino to topple.

Asked about the risks of the crisis spreading from Portugal, Finance Minister Elena Salgado said: "The markets have shown that they recognise the efforts" made by Spain.

The government would press ahead along the same line and "keep up the pace" of reforms, Salgado said.

"We should continue to grow. I think we are doing what is necessary on this and we will continue to do the same."

Spanish bonds barely reacted to the Portuguese crisis.

In fact, the Spanish 10-year bond risk premium -- the extra return demanded by investors when compared to safer-bet German bonds -- fell to 1.92 percentage points from 1.99 percentage points a week earlier and 2.83 percentage points at the height of Spain's woes in November last year.

European Commission vice president Joaquin Almunia underscored the differences between Spain and crisis-torn countries such as Greece and Ireland, both of which have accepted international bailouts.

"Anyone who analyses the financial markets can see that the development of indicators in Spain is clearly distinct to that of other countries such as Portugal, Ireland and Greece," he said.

Measures taken by Spain have "produced results," Almunia said during a visit to Madrid.

"Spain is capable of beating speculative attempts," he warned.

Spain's government warned against assuming that Portugal would seek financial aid after Socrates' resignation.

"The request for help is Portugal's responsibility and up to now it has always said that it does not intend to make the request," Salgado said, urging people not to get ahead of the facts.

"This is an internal Portuguese matter," she said. "We will have to wait to see what the consequences are."

© 2011 AFP

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