Spain rejects need for rescue, bonds strengthen
Spain rejected outright Tuesday any need for a rescue to avert a sovereign debt crisis even as European Central Bank intervention halted a market attack on its bonds.
Fears that the major European economies of Spain and Italy could be the next dominoes of a widening eurozone debt crisis have gripped financial markets.
Those concerns have been overshadowed for now by an historic downgrade of the United States' AAA-rated debt and by the shaky outlook for global economic growth, which have hammered stocks worldwide.
Finance Minister Elena Salgado said Spain could "of course" completely rule out the need for a financial rescue.
"Declarations from all the institutional representatives are the same, that Spain and our fundamentals are very far from needing a rescue, that what there is is instability in the debt markets," Salgado told Onda Cero radio.
The pressure on Spanish and Italian 10-year government bonds eased for a second day Tuesday after the European Central Bank intervened in the market as part of efforts to tame the eurozone debt crisis.
In early trade, the rate of return demanded by investors in the benchmark Spanish 10-year bond was 4.983 percent, down sharply from 5.138 percent at the close Monday.
"The debt market has stabilized in Europe this morning and that has been good news," Salgado said.
The finance minister stressed that Spain's public debt, equal to 63.6 percent of gross domestic product, was far below the European Union's average of 80 percent of GDP.
Markets fret, however, over Spain's annual public deficit, which amounted to 9.2 percent of GDP last year, way above the EU's 3.0 percent limit.
The government has vowed to slice that deficit progressively to 6.0 percent of GDP this year, 4.0 percent in 2012 and 3.0 percent in 2013, but doubts linger because of the slow economy, an unemployment rate of more than 20 percent and high spending by the semi-autonomous Spanish regions.
Salgado said there would be a European meeting on the crisis in the first days of September. "I hope it will not be necessary to have it earlier but if it is, we are all available for that."
She defended plans announced Sunday to bring in an extra 4.9 billion euros ($7.0 billion) this year by changing the schedule of advance tax payments by big companies and by cutting health spending through the mandatory use of generic drugs.
Spanish citizens had their tax for the year withheld in monthly installments, she said, and it was only reasonable to ask big companies to pay some of their installments in advance.
A report by Barclays Capital analyst Antonio Garcia Pascual welcomed the planned reforms and said they would help Spain to avoid slipping in its target to cut the public deficit to 6.0 percent of GDP this year.
Pascual said government plans to require more transparent accounting by the regional governments were also important.
"However, in our view, it is critical that the government improves the mechanisms of fiscal control of the regions," he added.
A proposed expenditure ceiling was a key step but "not sufficient," he said, saying there was no effective mechanism to prevent excessive spending by regional governments before it got out of hand.
"Therefore the risks of fiscal slippages in the regions are likely to persist and may remain a concern for the markets so long as more bold steps are not taken."
© 2011 AFP