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Spain Confident EU Won’t Need to Buy Its Bonds, Salgado Says

Spain's Finance Minister Elena Salgado
Spain's finance minister Elena Salgado. Photographer: Jock Fistick/Bloomberg

Finance Minister Elena Salgado said she’s confident Spain’s deficit-reduction efforts will restore investor trust and end the need for European authorities to support the nation’s bonds.

Even though the global slowdown threatens the country’s growth target for this year, the government’s commitment to cutting the region’s third-biggest deficit will shore up demand for its bonds, she said. “I don’t take it for granted” the euro-region’s rescue fund will have to backstop Spain’s debt when it takes over bond-buying from the European Central Bank after September, she said.

“The position of the Spanish government is to continue with the reforms and the austerity programs,” Salgado, 62, said in an interview in Madrid on Aug. 19. “We trust the markets will give us that vote of confidence so that by our own means we will be capable of stabilizing the Spanish debt market.”

Spanish and Italian bond yields surged to euro-era records in the past two months as wrangling among the 17-nation currency bloc over a second bailout package for Greece signaled European leaders still hadn’t found a formula for containing the region’s debt crisis. The plunge in bonds of the third- and fourth-largest economies in the currency group prompted the ECB to buy their debt to bring down their borrowing costs.

‘More Quickly’

Europe has failed to speak “with one voice” in addressing the crisis, Salgado said. “We have to act more quickly.”

EU President Herman Van Rompuy said on Aug. 20 he aims to streamline Europe’s communications policy to prevent public disagreements among policy makers undermining market confidence. He will make proposals in October to get everyone to convey the “same message,” he said.

EU leaders approved the second bailout for Greece in a year at a July 21 summit and were forced to adopt additional measures to protect other vulnerable euro members. The region’s rescue fund, the European Financial Stability Facility, was given enhanced powers to lend to countries before they need a bailout and will take over as bond buyer of last resort from the ECB once governments approve the changes in September.

Bond Yields

The ECB spent 22 billion euros ($32 billion) buying government debt in the week through Aug. 12. The yield on Spain’s 10-year bond fell more than 100 basis points from the close Aug. 4 to a nine-month low of 4.956 percent last week and traded at 4.96 percent today.

Salgado said she was confident Finland’s demand for collateral to participate in the Greek rescue wouldn’t delay approval by national governments of the bailout and enhanced EFSF powers. It still wasn’t clear how much of the 109 billion euros of new loans to Greece would be picked up by the International Monetary Fund, though the IMF is committed to the package, she said.

Salgado said meeting the Socialist government’s 1.3 percent economic-growth target this year is still “possible,” though “a bit more difficult than it was a quarter ago.” Growth slowed to 0.2 percent in the second quarter from 0.3 percent in the first three months as the expansion in France stalled and Germany’s economy barely grew, sapping Spain’s export-led recovery.

“How close we get to our target of 1.3 percent will depend on the general situation,” she said.

The government says it will still meet its goal of trimming the deficit to 6 percent of gross domestic product from 9.2 percent last year. Even with that decline, it expects debt to rise to 68.7 percent of GDP, the highest in more than 20 years.

Austerity Measures

The deepest austerity measures in at least three decades, including public wage cuts, are undermining the recovery from a three-year slump that pushed the unemployment rate to 21 percent, the highest in Europe. The Cabinet adopted measures to cut health spending and bring forward corporate-tax payments on Aug. 19 in an effort to save an additional 5 billion euros.

The government, which faces a general election on Nov. 20 that polls indicate it will lose, didn’t discuss at the Cabinet meeting a proposal by the ruling party’s candidate for premier, Alfredo Perez Rubalcaba, to bring back a wealth tax, she said. Salgado, who has called the decision to scrap the 2 billion-euro tax in 2008 a mistake, said that if the administration decided to resurrect the levy, “this ministry would take 24 hours to design it.”

Lottery Offering

To reduce debt, the government is also planning an initial public offering of 30 percent of lottery operator Sociedad Estatal de Loterias & Apuestas del Estado. The sale may prove to be the country’s biggest-ever of a state company, yielding a stock with a market value of $21 to $30 billion euros, the lottery’s chairman, Aurelio Martinez, said in June.

Salgado said this year’s 17 percent slump in the Ibex 35 share index won’t threaten the listing set for October.

“In IPOs, people look at the debt, which is zero, the record of profits -- which it has had for 250 years -- and the stability of sales, and the most sales have fallen was 0.5 percent in the worst moment of the crisis,” she said.

The company runs the world’s biggest lottery, the annual Christmas draw known as El Gordo, which had a prize pool last year of 2.3 billion euros.

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