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Spain Yields Trouble Guindos as Rajoy Rallies Party

Spanish Prime Minister Mariano Rajoy
Spanish Prime Minister Mariano Rajoy. Photographer: Alessia Pierdomenico/Bloomberg

Spain won’t be rescued and it’s “not possible” to do so, Prime Minister Mariano Rajoy said as lawmakers approved a bill to tighten the government’s grip on regions that flout budget rules.

“Spain is not going to be rescued,” Rajoy told reporters in Warsaw today after meeting Polish Prime Minister Donald Tusk. “It’s not possible to rescue Spain, there’s no intention to, it’s not necessary and therefore it’s not going to be rescued.”

Spanish 10-year bonds initially erased early gains and declined after the remarks, with the yield rising as high as 5.84 percent. Borrowing costs topped 6 percent this week, nearing the 7 percent level that prompted Greece, Ireland and Portugal to seek European bailouts, with the extra yield compared with German bunds holding above 400 basis points.

Rajoy is trying to convince investors and European partners he can reorder the nation’s finances as the surge in funding costs prompted French President Nicolas Sarkozy to cite Spain’s previous Socialist government as an example of poor economic management in his election campaign this week. As part of Rajoy’s efforts to control the deficit, Parliament passed a bill today to allow his government to intervene in regions that overspend.

Bailout Threat

Rajoy and his Cabinet ministers, in power since Dec. 21, have referred to the threat of a bailout in the past two weeks as they try to persuade Spaniards to accept the deepest austerity measures in at least three decades. Economy Minister Luis de Guindos said yesterday that the government must “put the house in order” as the “alternative is much worse.”

Regions are crucial to the government’s efforts to rein in the deficit as they control health and education and hire about half of all public workers. All but one region missed their budget goal last year, pushing the national shortfall to 8.5 percent of gross domestic product and topping the 6 percent target.

The law passed today sets out a road map for regions that fail to cut spending, which starts by requiring them to present a plan to reorder their finances and ends with a team of officials visiting the region to impose measures nine months later. The bill was passed with 192 votes out of the 350 total, as the opposition Socialists voted against, and now goes to the Senate for final approval.

Health and Education

Rajoy said the central government will sit down with officials from the regions next week to discuss changes to health and education, and the measures will be put into law this month. The government also plans to slim down the public administration and make sure that key services are offered by only one branch of government.

“The biggest excess produced by the creation of regions in 1978 was to replicate a mini-state in each of the 17 regions,” Antonio Beteta, Spain’s deputy minister for public administration and a former state budget chief, told a conference in Madrid today.

While the ruling People’s Party has a parliamentary majority and controls 11 of the 17 regions, Catalonia, the biggest region, is run by a nationalist party that seeks more autonomy from Spain. The third-biggest, Andalusia, is set to remain in the hands of the Socialists after the PP failed to win a majority there in elections on March 25.

Andalusia, run by the Socialists for more than three decades, is an example of a “lack of transparency,” which “leads to doubts,” Beteta said.

“When we’ll know the real figures for Andalusia, we’ll be able to form an opinion, till then all we have is fear because we don’t have them,” he said.

The government is stepping up pressure on regions to provide more information on their finances, and Budget Minister Cristobal Montoro said yesterday that regions will have to publish spending and revenue figures each month in a format that’s comparable with national accounting data.

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