Spain aims to calm markets with new reforms: report

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Spain plans new reforms this month to bring in an additional 4.9 billion euros ($7.0 billion) and help rein in the public deficit, Finance Minister Elena Salgado said in remarks reported Sunday.

Salgado, speaking to the national news agency Efe, also hit out again at the European Central Bank, calling on it to "do its job in supporting stability in the debt markets."

Some analysts have blamed ECB chief Jean-Claude Trichet's failure to clearly back Spanish and Italian government bonds last week for contributing to the massive turmoil on the stock and debt markets.

Salgado's comments came as world leaders and finance chiefs raced Sunday to come up with some answer to tame the eurozone debt crisis as an unprecedented US credit rating downgrade threatens even more heavy losses on Monday.

In a further bid to to calm markets fearful that Spain may be the next eurozone nation to need a debt bailout, Salgado said the government would save 2.5 billion euros this year through tax changes for large corporations.

A further 2.4 billion euros would be saved through the purchase of cheaper generic drugs, she said.

The savings would help the government to cut the public deficit from 9.2 percent of gross domestic product last year to 6.0 percent in 2011 and 4.0 percent in 2012 and then to 3.0 pct -- the EU ceiling.

The government last year introduced measures to strengthen bank balance sheets, cut spending, raise the retirement age, liberalise the labour market and sell off assets, all intended to stabilise the public finances.

But Spain's faltering economy slowed in the second quarter of this year, compounding its debt problems and making it even more difficult for the government to hit the deficit targets.

The Bank of Spain, which forecasts economic growth of 0.8 percent in 2011, warned in a report on Friday that sovereign debt market tensions could threaten the economic recovery in Spain.

Salgado also called for the rapid implementation of the agreements reached at an emergency eurozone summit on July 21, Efe said.

The summit approved a second bailout for Greece and strengthened the eurozone rescue fund, the European Financial Stability Facility, allowing it to buy government bonds in the secondary market.

By buying bonds in this way, the EFSF would take the immediate pressure off weaker eurozone states as they seek to raise fresh funds to cover their debt obligations.

However, changing the EFSF's functions has to be cleared by national parliaments and so it will take time, perhaps several months, which many fear will be too long for impatient markets.

© 2011 AFP

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