May 24 (Bloomberg) -- Spanish Prime Minister Mariano Rajoy called on the European Central Bank to act to bring down rising borrowing costs after Spanish bond yields approached the levels that pushed Greece, Ireland and Portugal into bailouts.
“If public debt isn’t sustainable, we have a problem,” he said today after a meeting of European Union leaders in Brussels. “I insist it is up to the ECB to take this decision that it has already taken in the past.”
Rajoy’s call for help from the Frankfurt-based ECB was his clearest yet. He has previously urged unspecified European authorities to help him battle Spain’s surging yields. The ECB helped ease yields in August when it began buying the country’s bonds and then lent euro-region banks 1 trillion euros ($1.3 trillion) for three years in December and February, some of which was recycled into public debt purchases.
“All the measures I have proposed can be taken in 24 hours, the most important one is guaranteeing the sustainability of the public debt of the countries of the EU,” Rajoy said. “For the moment, the sustainability of debt is guaranteed, but if it happened that it wasn’t anymore, a decision could be taken in 24 hours.”
Above 6 Percent
The yield on Spain’s benchmark 10-year bond fell to 6.167 percent today from 6.204 percent yesterday, narrowing the gap over German bunds to 480 basis points. The yield rose as high as 6.5 percent last week, approaching the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts.
ECB President Mario Draghi, who implemented the loan-term lending to banks a month after taking over at the bank, said that Rajoy wasn’t necessarily calling on the central bank to use its funds to shore up Spanish debt.
“This liquidity could be provided by other sources as well,” Draghi said after the meeting. “It’s just what he said in the meeting.”
Rajoy’s battle to win support from investors and European colleagues may have been undermined by his government’s announcement on May 18, at 10 p.m. on a Friday night, that the 2011 budget deficit was 8.9 percent of gross domestic product, compared with the previous estimate of 8.5 percent. The slippage was due mainly to two regional governments controlled by the ruling party declaring bills they had left unpaid.
The five month-old government is also struggling to restore confidence in its financial system as it implements its second overhaul of banks since coming to power. Three months after its first effort to clean up lenders, the state nationalized BFA-Bankia, the third-largest, on May 9 and then increased provisioning rules for banks and called in international consultants to look over their books.
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