Rajoy Wins Merkel’s Backing as Spanish Borrowing Costs Rise

German Chancellor Angela Merkel expressed confidence in Spanish Prime Minister Mariano Rajoy’s ability to stem the debt crisis as he faces corruption allegations and rising borrowing costs for his country.

Rajoy and his government are working to reduce unemployment and overhaul the economy “so Spain can return to its full strength,” Merkel told reporters in Berlin after talks with her Spanish peer today. “I’m convinced that the Spanish government and Mariano Rajoy as prime minister can resolve this task, and Germany will help him with all of our strength.”

Merkel and Rajoy met to prepare for European Union negotiations on Feb. 7-8 on the EU’s next seven-year budget, only to face questions at a joint news conference about Rajoy’s political stamina. Merkel said they have a “relationship based on trust” and voiced understanding for the plight of Spain’s jobless, though she didn’t propose specific help.

Rajoy, in office since December 2011, faces opposition calls to resign after reports in the El Pais newspaper that he or members of his People’s Party received illegal payments. Standing next to Merkel, he said the reports were false.

Spanish bonds slumped today, sending the 10-year yield up 23 basis points to 5.42 percent at 4:44 p.m. in Berlin. Italy’s 10-year bond yields also climbed. The euro fell 0.7 percent to $1.3551.

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