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Spain will not seek international bailout: minister
06 December 2010 @ 14:33

Spain will not follow Greece and Ireland in seeking an EU-IMF bailout, Finance Minister Elena Salgado said in a newspaper interview published on Monday, but also urged long-term fiscal union in the eurozone.

Salgado emphatically ruled out Madrid seeking a rescue, just one trading day after it emerged that the European Central Bank had ridden to the rescue of eurozone governments at risk by buying huge amounts of their debt.

"No", she told Les Echos business newspaper, "because our (economic) fundamentals do not justify it."

Salgado said that Spain intended to pay its share, about 12.48 percent, of a rescue for Ireland involving 67.5 billion euros from the European Union and IMF.

She also called for a "major economic and fiscal integration" of the states which share the euro over the long term, but stressed that the immediate priority was reducing imbalances between eurozone countries.

The question of fiscal union is highly controversial, and implies a big change in the structure of the eurozone, because it would institutionalise tax transfers from one country to another with implications for tax sovereignty.

"At this moment I don't think a complete fiscal harmonisation is possible. You can't improvise a fiscal union," Salgado said.

EU states have already agreed to tighten their fiscal coordination with tougher sanctions, but a growing number of analysts have been saying that the eurozone may need to create a full-blown fiscal or transfer union to avoid the imbalances behind the current debt crisis.

Greece was driven to a rescue by major imbalances in its public accounts and Ireland's troubles "were caused by its banks," she added.

Salgado said that a Spanish fund to help restructure insolvent banks would be sufficient in the event of big losses.

"Its capacity is 99 billion euros, and only 11 billion has been mobilised so far. Given that the interest rate is seven percent, there is little risk that this facility will be used needlessly," said Salgado.

The minister spoke after a weekend during which a hard line by the Socialist government dealt with a strike by air traffic controllers, and a week after the government suddenly announced a new wave of privatisations to reduce its exposure to debt.

On Thursday the European Central Bank said that it would continue an exceptional measure of buying some eurozone debt to relieve pressures on the bond market, and on Friday it emerged that the ECB was buying debt in massive quantities.

At the beginning of last week, the head of the ECB Jean-Claude Trichet had warned that markets were under-estimating the will of EU institutions to defend the eurozone.

In the wake of the Ireland rescue, caused by the cost to Ireland of bailing out its banks, investors have become increasingly concerned about Spanish banks, particularly regional savings banks, which have been hit by the bursting of the country's property bubble.

Investors were not reassured by Spanish government statements that the country would be able to master its fiscal difficulties and relaunch growth, and drove up interest rates the state must pay to borrow to record high levels, until the ECB increased it purchases of bonds.

Even the European Commission expressed doubts last week about the Spanish government's ability to reduce its public deficit to 6.0 percent of gross domestic product next year from this year's target of 9.3 percent.

Spanish Prime Minister Jose Luis Rodriguez Zapatero then announced on Wednesday that his government would sell 30 percent of the state-owned lottery, 49 percent of airport management company AENA, scrap a jobs subsidy and lower taxes on small- and medium-sized businesses.

These measures will help "accelerate the reduction of public deficits", said Salgado.

Source: AFP/Yahoo

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