Spain: market tensions may continue for days

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Spanish Finance Minister Elena Salgado Friday warned that market turmoil over the eurozone debt crisis may continue for several days, blaming volatility that usually occurs in the months of August.

"The situation can last several days. We cannot rule out that the volatility will continue for a few days. We are being vigilant, and in contact with European authorities," she said.

"The volatility occurs in the months of August, when the market is thin. We must show the markets determination in reforms, assurance in the compliance with deficit (reduction) and an improvement of European governance."

She was speaking at told a news conference after an emergency meeting with Prime Minister Jose Luis Rodriguez Zapatero and other senior government officials hours after Spain's debt risk premium shot to another record high Wednesday.

The premium demanded for buying Spanish 10-year bonds over safe-bet German bonds surged Wednesday morning to 407 basis points -- the highest since the introduction of the euro in 1999 -- before easing.

It was the second day in a row that investors had pushed the premium on Spanish government debt to a record high, fearing that Madrid's problems will only get worse as economic growth slows.

The crisis has forced Zapatero to interrupt his summer holiday.

"We are approaching this situation with concern, but with the confidence that we are doing the work that has to be done," Salgado said. "We are continuing with the reforms and fiscal consolidation to reduce the deficit.

"The situation in the United States, the slowdown and the effects on other countries have exacerbated tensions.

In a call to European Union President Herman Van Rompuy earlier Wednesday, Zapatero agreed that a new eurozone rescue plan for Greece must be implemented as soon as possible to soothe markets, his office said.

The eurozone debt crisis has already claimed Greece, Ireland and Portugal, forcing them to seek bailouts from the European Union and International Monetary Fund.

There are growing fears the Italy and Spain, the eurozone's third- and fourth-biggest economies, could be next in line, developments that would dwarf previous bailouts and could undermine the euro itself.

European Commission President Jose Manuel Barroso said in Brussels that financial market pressure on Italy and Spain is "clearly unwarranted" but is cause for "deep concern."

The market turmoil strikes at a delicate time in Spanish politics and finances, with a government bond auction scheduled for Thursday to raise 2.5-3.5 billion euros ($3.6-5.0 billion).

"There is a tense situation, but Spain is addressing it with relative calm," Salgado said, noting that "our debt to GDP ratio will finish the year at around 68 percent," far less than the levels for Germany and Belgium.

"Tomorrow we go to the auction with the hope that Barroso's statement will help calm the markets."

© 2011 AFP

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