Spain says an "abyss" separates it from Ireland
An "abyss" separates Spain from the crisis-struck Irish economy, a top policymaker said Wednesday after fearful investors punished Spanish stocks and bonds.
Concerns about the weaker European economies have spread since an Irish banking catastrophe sank the state's finances, with Portugal, Greece, Spain, and Italy forced to pay far higher rates to borrow money from the markets.
"There is no doubt, an abyss separates us from Ireland," the deputy finance minister for the economy, Jose Manuel Campa, said in an interview published in leading daily El Pais.
Spain is "a country with a low level of public debt, which is in a process of fiscal consolidation that it is carrying out and will complete, which has just passed labour market and banking reform, and which is about to launch a reform of state pensions and collective bargaining," Campa said.
The state was forced to almost double the interest paid on short-term bonds in an auction on Tuesday, its first following the Irish bailout -- 1.743 percent for three-month debt compared to 0.951 percent in October.
When the rate paid for Spanish debt is compared to the rate demanded for the highest quality German 10-year bonds, the gap grew to a record high Wednesday: 251 basis points -- compared to about 170 points in mid-2010.
Spain's stock market slumped 3.5 percent on Tuesday, the steepest fall in Europe and the third consecutive decline and was down a further 1.28 percent on Wednesday amid increasing fears of a contagion effect from Ireland.
Asked about the market tensions, Campa said these were the result of "short term turbulence, which will pass.
"We must not overreact to what is happening in recent days but remain very clear about what we have to do. And on this we have little doubt. For this we have the support of the international institutions," he said.
Campa said markets had little doubt that Spain was doing enough.
"What is happening is that there is a lot short-term volatility, linked to exceptional circumstances, with the first intervention of the European rescue fund under way for Ireland."
The Spanish government has issued multiple declarations arguing that there is no reason for market fears about the economic crisis in Ireland spreading to Spain.
But some economists point to weaknesses in the Spanish economy with growth flat and unemployment of 20 percent, the highest among those countries that use the euro currency.
© 2010 AFP