Spain insisted on Thursday it will not need to tap a rescue fund but Prime Minister Jose Luis Rodriguez Zapatero said the time has come for the eurozone to move towards a more integrated fiscal and economic policy. Spain is quickly moving into the eye of the storm in Europe's debt crisis and its cost of borrowing at a three-year bond tender on Thursday was around 50 percent higher compared to the beginning of October.
But the jump was not as bad as feared and demand was solid, reflecting expectations the European Central Bank will extend its bond buying programme and the belief of some investors that Spain is not as much at risk as recent market action suggests. "Spain isn't going to have to tap any EU fund or resort to them," Spanish Prime Minister Jose Luis Rodriguez Zapatero said, according to a transcript of an interview with CNBC. "It's a country which is going through a crisis because of the financial system crisis and the real estate bubble bursting, but we are undergoing reform."
With billions in aid for Greece and Ireland having failed to stem the debt crisis, EU policymakers have begun to think of radical solutions, with ideas so far mentioned on the sidelines of meetings, discussed informally or only sketched out. The argument for a more unified approach on budgets is that the lack of a full fiscal union among the 16 euro members creates tensions and risk differentials that are now being exploited. "What Spain advocates is that if we have a single currency, it's not enough just to have a central bank, a single central bank. It's not enough to have a single monetary policy. We also need to have a common economic policy," Zapatero said.
"We need to have a much more integrated fiscal policy, which is common policy, in order for our competitive positions to converge much more to become a pillar underpinning our single currency." The interest investors charge on Spanish benchmark 10-year bonds over the German benchmark narrowed for a second day on Thursday to about 240 basis points, after hitting a euro era high above 300 basis points on Tuesday.
The leading Spanish blue chip index, the IBEX also rallied following the auction. Madrid on Wednesday announced the sale of stakes in leading airports and its state lottery as well as plans to raise tax brackets for smaller companies and cut one-off welfare payments for the long-term unemployed. Economy Minister Elena Salgado said in an interview with the Financial Times the sale of state assets would allow it to reduce new debt issues next year by around a third to 30-31 billion euros ($40.6 billion). "That will allow us to reduce our stock of debt," Salgado said. The government's biggest problem, however, remains growth and how to reboot its economy after the collapse of a property boom that had driven rising prosperity over the past decade.
The Labour Ministry said the number of registered jobless rose in November and would top 20 percent of the workforce in the fourth quarter overall, after falling for the first time in 3 years in the third. Salgado noted Italy and Belgium as well as Spain and Portugal had been hit by volatile market movements. These have pushed Spanish 10-year bond yields to as high as 5.6 percent from 4.2 percent a month earlier. "In recent days the attacks of the markets have affected 40 percent of the eurozone in terms of gross domestic product (GDP)," she said. "When there's a problem that affects 40 percent of eurozone GDP, it's a systemic problem, it's not a problem of one country or another."
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