Spain says risk premium surge 'not too important'

19th April 2011, Comments 0 comments

A surge in the risk premium paid for Spain's latest multi-billion-euro debt issue was "not too important," Finance Minister Elena Salgado said Tuesday.

Spain was forced to pay sharply higher rates than a month earlier when it raised 4.66 billion euros ($6.6 billion) in 12- and 18-month bills in an auction on Monday.

But in the context of Spain's overall debt issuance, "a peak of several extra points at the time of an issue is not too important," Salgado told the radio Cadena Ser.

"In fact the interest-rate burden on Spanish public debt is among the lightest in Europe," she said.

Spain has been swept up in the latest wave of concern over sovereign debt, propelled by Portugal requesting a bailout April 6 and then by Standard & Poor's warning Monday it may downgrade US debt.

Greece and then Ireland were bailed out by the European Union and International Monetary Fund last year when investors concerned about their high debts demanded punishingly high rates in return for loans.

Spain, whose economy is the size of Greece, Ireland and Portugal's combined, has been battling to convince markets that it should not be lumped together with its less fortunate partners.

The Spanish authorities have enacted reforms to strengthen bank balance sheets, cut state spending, make it easier to hire and fire workers, lower the retirement age and sell off assets.

Prime Minister Jose Luis Rodriguez Zapatero has vowed to bring the country's annual public deficit below an EU ceiling of 3.0 percent of gross domestic product in 2013.

The public deficit hit 11.1 percent of gross domestic product in 2009, the third-highest in the eurozone after Greece and Ireland, before falling to 9.24 percent last year.

And the economy is struggling with an unemployment rate that hit 20.33 percent at the end of 2010, the highest in the industrialized world.

Salgado said the yield on Spanish public debt began to rise on Thursday on concerns about the possibility of a restructuring of Greek debt.

Strong gains in Finland's weekend elections by the right-wing True Finns who oppose EU bailouts added to the doubts, she added.

"All this has affected several countries' debt -- Spain's but also Belgium's," Salgado said.

If this trend is reversed by Spain's deficit-cutting and financial restructuring then the latest increase in yields "won't have any consequences," the finance minister said.

© 2011 AFP

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