Spain Doesn’t Need Bailout or Budget Cuts, Guindos Says
Spain’s Economy Minister Luis de Guindos said his country doesn’t need a bailout and that budget cuts that have already been planned will be sufficient to meet a deficit goal set by the European Union for 2013.
“Spain doesn’t need any sort of bailout” and the target for the budget shortfall this year is “achievable,” de Guindos told Ryan Chilcote in a Bloomberg Television interview today in Davos, Switzerland, where he is attending the World Economic Forum. “The perception of the Spanish economy has improved and will continue to do so over the next weeks and months.”
Pressure on Prime Minister Mariano Rajoy’s government has eased after borrowing costs fell in the wake of the European Central Bank’s pledge in September to buy bonds if nations apply for help. Unemployment still rose to a record 26 percent last year, and de Guindos declined to say today if the country will meet an EU deficit forecast of 7 percent of gross domestic product in 2012, excluding European aid to banks.
“It’s not a magic number, there are several elements to take into account,” de Guindos said. “I think the measures we have taken, that we have included in our budget law are enough to reach our targets.”
The European Commission prediction for Spain’s budget shortfall last year is already wider than the EU’s goal of 6.3 percent of gross domestic product. The target for 2013 is 4.5 percent.
De Guindos said the ECB’s bond program showed the determination of the euro region’s officials to combat the crisis. ECB President Mario Draghi pledged in July to do whatever is needed to preserve the euro.
“Much more important than the possibility of buying bonds in the secondary market is the clear commitment that this program shows in terms of the future of the euro zone,” de Guindos said. “So far we do not need the ECB buying bonds in the secondary market, what we need is to dispel all the doubts on the future of the euro zone.”
The yield on Spain’s 10-year benchmark bond was at 5.141 percent at 3:49 p.m. in Madrid. That compares with an intraday record of 7.75 percent on July 25, before Draghi said he would do all it takes to save the euro. Spain still pays 3.5 percentage points more than Germany to borrow for 10 years.
“The spread is too wide, given the fundamentals of the Spanish economy,” de Guindos said. “We expect it will continue to narrow over the next months because we feel doubts over the future of the euro zone will start to dissipate.”
While Spain’s budget deficit goal can be achieved this year, that for 2014 depends on the expected economic recovery materializing, de Guindos said.
The International Monetary Fund this week cut its forecast for economic growth in 2013 in the euro area’s fourth-largest economy, predicting that it will contract 1.5 percent instead of 1.4 percent.
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