Spanish banks rule out need for European lifeline
Spanish bank bosses ruled out Thursday any need for a European lifeline as the country tried to insulate itself from the Irish economic emergency, but stocks slipped further.
The health of the Spanish banking sector came under market scrutiny as the Irish crisis reawakened concerns about the Spanish property-dependent economy and financial sector.
Any rescue of Spain's economy would dwarf Ireland's. Spain accounts for 12 percent of economic output among the 16 nations that use the euro currency, equal to twice that of Ireland, Portugal and Greece combined.
In early afternoon trade, Spain's main Ibex 35 index of key shares was down 1.05 percent at 9,640 points. Since the start of the week, the index has shed 6.1 percent of its value.
The gap between safe-bet German 10-year bonds and comparable Spanish bonds eased slightly to 2.32 percentage points at the same time, after stretching to a record 2.51 percentage points at one point the day before.
Spanish Banking Association president Miguel Martin, speaking to the press after a bankers' meeting in Madrid, ruled out any chance of an Irish-style rescue for Spain.
"Of course Spain will escape any rescue. We don't even begin to think that Spain may need a rescue," he said.
Nevertheless Martin called on the Socialist government of Prime Minister Jose Luis Rodriguez Zapatero to deepen reforms already undertaken.
Spain, under pressure from the Greek crisis earlier this year, has cut spending, raised taxes, reformed labour laws and restructured the regional savings bank system -- a weak point.
The economy suffers a 20-percent unemployment rate -- highest in the euro currency zone -- and a feeble recovery has stalled with zero growth in the third quarter.
Replying to a question, Martin said any risk of a Spanish default would have to be based on a scenario of generalised panic.
Ireland was a special case with problems that could be resolved, and it should not be used as an example for what may happen in other countries in the eurozone, he said.
"We expect it will be contained there, I do not believe that Spain is a good example for what will happen elsewhere. Europe has an extraordinary power and Ireland is relatively small."
The spokesman for Spanish banking chiefs said he would argue against any sovereign debt restructuring and he believed that the European authorities were capable of resolving the crisis.
European competition chief Joaquin Almunia said there were two key doubts about Spain, in an interview with private radio station Cadena Ser.
"There is a doubt on one hand over whether Spain will able to apply what it has decided and this needs to be removed as soon as possible by saying that there is a determination to carry out every engagement," he said.
"And the second doubt is whether Spain has anything else on the table. I think that it is necessary to say that in addition to everything else, Spain has a growth strategy," he added.
"Spanish growth up until the crisis relied largely on a sector that will not recover to the same level, which is the property sector."
Economists warn that Spain's high jobless rate and flat economic growth give little hope for a rebound in property prices.
© 2010 AFP