In Brief
Zapatero rules out rescue plan for Spain MADRID (AFP) – Prime Minister Jose Luis Rodriguez Zapatero «absolutely» ruled out yesterday an Irish-style rescue for Spain even as markets cranked Spain’s debt risk premium up to record highs. The prospect of a rescue for Spain’s economy, which is twice the size of that of Ireland, Greece and Portugal combined, is sowing deep concern on world financial markets. Investors are demanding increasingly high rates in return for taking the risk of buying Spanish debt, adding to the problems faced by Madrid in raising fresh cash. The gap between safe-bet German 10-year bonds and comparable Spanish bonds leapt to a record 2.60 percentage points in morning trade. A few months ago the gap was 1.70 percentage points. »I am not delivering a message of confidence just because I want to but because of concrete facts,» Zapatero said in an interview with Catalan radio RAC 1. The prime minister said Spain’s public debt was considerably lower than the European average. Portugal adopts raft of austerity measures LISBON (AP) – Portugal adopted a raft of debt-reducing austerity measures yesterday, which the government claimed would be enough to restore market confidence in its public finances without resorting to a bailout. Portugal’s high debt and low growth have alarmed investors, fueling speculation it may be the next European country to need rescue after Greece and Ireland. Although it does not have a major debt sale until January, analysts say investors will not be reassured until its public finances are shored up by Europe’s emergency fund. Prime Minister Jose Socrates said in a brief statement after Parliament approved the government’s 2011 spending plan that the country had «no alternative at all» to the belt-tightening policy. «We must make this effort,» Socrates said. He did not take questions. Socrates said Portugal is on track to lower its budget deficit to 7.3 percent of gross domestic product this year. The deficit reached 9.3 percent last year – the fourth highest in the eurozone after Greece, Ireland and Spain. That rise, accompanied by an economic recession, contributed to broader concerns about the financial soundness of the 16-nation eurozone. Cypriot deficit Cyprus must focus on reducing its budget deficit and reforming its pension systems as growth of the east Mediterranean island dwindles, International Monetary Fund Executive Director Age Bakker said. «This year and next there will be some growth, but it is clear that it will not be the large growth figures Cyprus had in the past,» Bakker told reporters in Nicosia yesterday after a meeting with President Dimitris Christofias. «It is clear that fiscal consolidation will be needed in the coming years. Financial markets have become sensitive over the last year.» The euro area’s second-smallest economy, which contracted 1.7 percent in 2009 and had a fiscal deficit of 6.1 percent of economic output, should start taking measures to safeguard the viability of its social insurance fund and pension system as «they are not fully funded,» Bakker said. Ireland’s case is a difficult one, and different compared to Greece, which is on the «right track,» he said. With the measures taken by the Irish government, «we will be able to contain the situation,» Bakker said. (Bloomberg) Short selling The European Parliament and the bloc’s executive body are pushing to fast-track powers to ban short-selling of government debt by early 2011 but face resistance from Britain, which is worried it could raise borrowing costs. Senior officials in the European Commission, which is scrambling to contain spiraling borrowing costs for countries like Ireland and Portugal, believe the option to ban would prevent speculators from aggravating such problems. Michel Barnier, the commissioner in charge of financial reform, will address banning powers when he meets with economy and finance ministers in early December, an EU official said. «If you have a mechanism in place, you would be better placed to act,» said the official, adding that giving a new European watchdog the authority to ban would calm markets. (Reuters)
