Spain will overcome economic crisis without aid: minister

Spain will overcome its financial crisis without external aid and even emerge strengthened, Economy Minister Luis de Guindos said in an interview published Saturday.

He told the Frankfurter Allegemeine Zeitung that the current year would be difficult, with lower growth and higher unemployment, “but we are laying the groundwork for a better 2013.”

Madrid’s ability to bring its strained finances under control caused new worries Wednesday when its borrowing costs rose sharply at its first debt sale since a tough austerity budget last week.

The budget includes 27 billion euros in tax increases and spending cuts aimed at slashing the public deficit to 5.3 percent of output this year from 8.5 percent in 2011.

Spain is racing to slash its public deficit to reassure markets that it will not follow Greece, Ireland and Portugal in needing an international bailout after it missed its 6.0 percent public deficit target last year.

But the task is complicated by the fact that Spain is heading back into recession with the economy expected to shrink 1.7 percent this year and the unemployment rate to rise to 24.3 percent, according to government estimates.

De Guindos said priorities were a reform of the public sector, especially health and education, to reduce spending followed by liberalising trade and services.

The financial sector will see weaker components, including banks, disappear, he added.

“We will come out of this, even stronger, and without external aid,” he proclaimed.

Meanwhile, the prime minister of neighbour Portugal, bailed out in May 2011, said he did not know if his government could return to the bond market in September 2013 but said the European Union and International Monetary Fund would extend aid if necessary.

“That does not necessarily mean a second bailout,” Pedro Passos Coelho told the German daily Die Welt. “I see no reason for that.”

He said Lisbon was on the right track and reaching all its major targets.

Portugal’s auction of 6- and 18-month treasury bills on Wednesday was considered a success, while the IMF said Thursday the country was on track to meet its debt-rescue targets but still faces “formidable challenges.”

The IMF said the European Union might have to stand by promises of more support as the recession will likely deepen in the short term and unemployment, already higher than envisaged under the programme, is likely to rise further in the coming months.