European Central Bank President Jean- Claude Trichet challenged political leaders to do more to fix their budgets as Spain ramped up measures to fight the threat of contagion.
“We have the same message for all countries -- ‘take all measures to make next year’s fiscal objectives credible,’” he told RTL radio in Paris yesterday. Germany said no ad hoc European Union talks are planned today or tomorrow on the region’s ongoing sovereign debt crisis.
European finance ministers have spent the past three weekends locked in talks on how to rescue Ireland and stop the region’s debt turmoil from engulfing Spain. With Spanish bonds plunging the most in at least 11 years on Nov. 30, the government is rolling out new deficit-cutting steps just one week after saying they wouldn’t be needed.
Spain’s Cabinet yesterday raised tax on tobacco and set a date for a pension overhaul, two days after saying it plans to raise about 14 billion euros ($18.4 billion) from selling stakes in the airport operator and lottery company.
“Time has run out; we have been talking for months,” Deputy Prime Minister Alfredo Perez Rubalcaba told reporters, referring to the pension plan. “We are going to work even harder to reach agreements.”
Euro region finance ministers are scheduled to meet in Brussels on Dec. 6 for a regular meeting.
A market rout in the aftermath of Ireland’s bailout forced Trichet’s ECB into a new wave of bond purchases this week. The extra yield that investors demand to hold Portuguese 10-year bonds over German bunds yesterday fell below 300 basis points for the first time since August. Ireland’s 10-year yield plunged 30 basis points to 8.2 percent yesterday and the Spanish 10-year yield, which hit 5.67 percent on Nov. 30, closed at 5.1 percent.
The latest round of the crisis is forcing leaders once more to assert their support for the euro.
Trichet said he discussed “an overview of the euro zone,” including its economy, at a meeting with French President Nicolas Sarkozy in Paris yesterday. Sarkozy said the euro was credible and had become “the second global reserve currency,” the government said in a statement.
“The German government stands behind the euro,” German Chancellor Angela Merkel said yesterday in Bayreuth, Germany. “It is fighting for a stable euro and will do everything within its power” to push other EU countries toward embracing a “culture of stability” in their public finances.
Options for EU leaders should the crisis worsen include boosting their 750 billion-euro ($992 billion) temporary rescue fund or turning it into an asset-buying program, cutting interest rates on bailout loans or issuing joint bonds for the 16 euro nations.
Trichet himself is putting pressure on EU governments to increase their crisis-fighting arsenal, indicating yesterday that the emergency fund could be stocked up. Asked about the size of the cash pool yesterday, he said that “everything they do needs to be commensurate to dimension of the challenges.”
“This is true in all domains, qualitative as well as quantitative,” he said. “They must go as far as possible and be as effective as possible.”
To contact the editor on this story: John Fraher in London at firstname.lastname@example.org