Euro Area Ready to Act as Spain Yields Surge, Frieden Says

The euro area is ready to act to help Spain as the country’s borrowing costs soar, Luxembourg Finance Minister Luc Frieden said.

While Frieden said no work is being done for a bailout of the Spanish government, policy makers in the 17-nation euro area must be prepared to move quickly.

“In such difficult times as we are in, one has to follow the situation on a permanent, daily basis and be ready to act at any moment,” Frieden said in a telephone interview today in Luxembourg. “The political decisions in the case of Spain and also of Greece have been taken to be able to act fast. That’s what is important especially now in the summer months.”

Spain’s benchmark 10-year bond yield reached a euro-era record of 7.625 percent today as the nation’s borrowing costs rose at an auction amid concerns its banks’ and regions’ debts will force the government to seek a sovereign bailout. Spanish Economy Minister Luis de Guindos is holding crisis talks in Berlin with German counterpart Wolfgang Schaeuble.

A full-blown Spanish bailout can be averted if the European Central Bank starts buying the nation’s bonds in large quantities, the head of the Organization for Economic Cooperation and Development said. Europe should deploy all of its instruments “but mostly the ECB,” OECD Secretary General Angel Gurria said in a Bloomberg Television interview in London. “There is the bazooka.”

‘Remains Difficult’

The concerns about Spain helped to push down the euro and European stocks. The European currency fell below $1.21 for a second day, also pressured by Moody’s Investors Service’s decision to cut its outlook for the Aaa credit ratings of Germany, the Netherlands and Luxembourg. European stocks retreated for a third day, with the Stoxx Europe 600 Index down 0.5 percent at the close in London.

Frieden said Moody’s decision is “a confirmation that the situation remains difficult and that we have to continue doing whatever we can to make sure the euro zone remains a stable area.” The ratings company was prompted “by the overall situation in the euro zone and especially in Greece,” he said, adding that “there are still a lot of uncertainties” about the situation.

Still, Moody’s “didn’t give enough consideration to the efforts and decisions made at a European level, especially considering Spain,” the minister said. “This outlook is more a reflection of a short-term sentiment than a long-term reality.”

Frieden said an emergency meeting of finance ministers before September isn’t needed because all the necessary decisions have been taken.

“What counts now is to implement what has been decided, but implementation, as in the case of Spain, takes of course a certain time, because the analysis on the field has to be made and it’s the same in the case of Greece,” he said.

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