Spanish PM says financing of debt 'guaranteed'

12th July 2011, Comments 0 comments

Spain's prime minister said on Tuesday his country's debt financing was "guaranteed" as he attacked a divisive debate over private sector involvement in a new Greek bailout.

Prime Minister Jose Luis Rodriguez Zapatero said the financing of Spain's public debt had "every guarantee" as markets sent its risk premium over safer German bonds soaring to a euro-era record.

Higher rates demanded by investors raised Spain's borrowing costs but there should be "absolute calm" about the financing of the state, he said.

"The financing plan for our debt has every guarantee," Zapatero told a news conference with European Union president Herman Van Rompuy after they discussed Spain's reforms and the market turmoil.

Zapatero blamed market ructions on the opening of a debate about how private investors might be asked to take part in a resolution to the Greek sovereign crisis.

"We have to make clear as soon as possible what the central problem is, which was the moment that a debate was opened about the participation of private debt in a Greek solution," the Spanish leader said.

"The debate was not opened properly and it has not closed," he added.

"I repeat, the debate was not opened properly. I said it at the time. I made my disagreement clear. Because, one, when you make a proposition its reach has to be defined when it affects private investors and their interests; and, two, you have to evaluate the effects of the proposal."

Spain's government had not changed its opinion about the debate, Zapatero said.

"This is not the right path. The right path is not to go through an exploration of formulas for private sector participation. Unless you have one serious, rigorous, foreseeable formula that generates confidence and a sense of responsibility it can produce negative effects."

The involvement of the private sector in a new bailout is at the root of rifts within Europe, with the likes of Germany, the Netherlands and Finland insisting on burden-sharing, whatever the cost.

The European Central Bank on the other hand opposes forcing banks into a deal that could be interpreted as a default of Greece.

Spain's prime minister called for a European response to the crisis that is "clear and quick."

The Spanish Treasury plans to issue 93.8 billion euros ($131 billion) in debt to finance the state.

It faces three peak periods this year to repay expiring short and long-term debts with 22.8 billion euros due in April; 21.6 billion euros in July; and 22.6 billion euros in October.

"I am fully aware of the current tensions in debt markets," said Van Rompuy, adding that a eurozone summit on the crisis was "not excluded" but not yet confirmed.

"But let me be very clear that there is a very strong commitmment at the highest level to do whatever is necessary to safeguard the financial stability of the euro area," he added.

"Leaders have to rise above their domestic political agenda, and they will."

Van Rompuy said it was important to differentiate between countries, praising "very important reforms" by the Spanish government to rein in its public deficit, reform the labour market and restructure the financial sector, particularly the regional savings banks.

Spain's public debt hit a 13-year high of 679.78 billion euros, equal to 63.6 percent of annual gross domestic product, at the end of March. But the sum was well below the European Union average.

The government plans to cut the annual public deficit from 9.24 percent of GDP in 2010 to 6.0 percent of GDP this year, en route to meeting a European Union-agreed deficit ceiling of 3.0 percent of GDP in 2013.

© 2011 AFP

0 Comments To This Article