Spain must learn from Greek crisis: central bank head

3rd May 2010, Comments 0 comments

Spain should learn from Greece's fiscal crisis and take adequate measures to reduce its public deficit, Bank of Spain Governor Miguel Angel Fernandez Ordonez said Monday.

"Spain should draw lessons from the Greek case and do what we have to do," he told reporters a day after European nations endorsed an unprecedented 110-billion-euro (146--billion-dollar) bailout to save Greece from bankruptcy and shore up the euro single currency.

"I hear many comments about how we have to act promptly, but it is important to take measures which, moreover, are sufficient, because otherwise on the following day we will once again face the same problem," he added.

Investors worry that Greece's debt debacle could spread to other heavily eurozone nations under financial pressure, including Spain, but Ordonez said the situation in Spain "was far, very far, from that in Greece."

"Many countries would like to have Spain's debt," he added.

While Greece's public deficit was equal to 13.6 percent of its gross domestic product (GDP) last year, in Spain it was 11.2 percent.

Greece's debt-to-GDP ratio is 115.1 percent, compared to just 53.2 percent in Spain.

Another factor contributing to Greece's financial troubles is a low savings rate of 6.0 percent of GDP. Spain has a savings rate of 20 percent of GDP, which is comparable to that in France (19 percent) and Germany (23 percent).

The Standard & Poor's credit rating agency on Wednesday lowered Spain's long-term sovereign credit rating to "AA" from "AA+" amid fears its recession could further weaken its public finances.

S&P's move on Spain came one day after it cut Portugal's long-term credit rating by two notches and reduced Greece's rating the junk status, the first eurozone country rated less than investment grade since the launch of the euro.

The Spanish government announced a 50-billion-euro austerity package earlier this year as part of its drive to cut its public deficit to within a limit of 3.0 percent imposed on the 16 nations that use the euro single currency by 2013.

The plan calls for cuts in government spending, a virtual freeze in the hiring of civil servants and some tax rises.

It has also proposed raising the legal retirement age from 65 to 67 and would reduce cut the cost of firing workers as part of efforts to revive the economy and slash the unemployment rate, which hit 20.05 percent in the first quarter.

© 2010 AFP

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