Brussels, 24/07/2012 (Agence Europe) - Bad news is raining down on Spain. While it was managed on Tuesday 24 July to issue its short-term national debt, it was at sharply increased rates. Catalonia has also applied for aid from the Spanish bail-out fund for regions in difficulty (see related article). It was against this backdrop that Spanish Economy Minister Luis De Guindos met his German counterpart Wolfgang Schäuble in Berlin on Tuesday evening.
The Spanish Exchequer paid a hefty price to be able to borrow a little over €3 billion. The interest rates set for three and six month bonds rose sharply, from 2.36% to 2.43% and form 3.2% to 3.7% respectively compared with the previous similar transaction at the end of June. The yield demanded on ten-year bonds reached a new record of above 7.6% on Tuesday.
Given that interest rates on long-terms bonds of more than 7% re not sustainable in the medium term, the Spanish authorities have called publicly for large-scale action at European level. The relaunch by the European Central Bank (ECB) of its purchase of sovereign debt, in abeyance for the last four months, would be the preferred measure. It would have the advantage of - temporarily - calming the markets without the need for conditions to be formally attached. This would be the case if there were to be activation of the European Financial Stability Facility, which could buy up sovereign debt on primary and secondary markets of those eurozone countries which were making great efforts to consolidate their budgets and to carry out structural reform but remained, nevertheless, a target for the markets. In seeking aid from the EFSF, Madrid would have to adopt new measures, in addition to all the savings and liberalisation measures already adopted. “This instrument can be used on request by a member state. There has been on request”, stared a European Commission spokesperson.
Catalonia. Following on from Valencia and Murcia, the autonomous region of Catalonia announced on Tuesday that it would seek assistance from the national bail-out fund for regions in difficulty. “The current situation is such that Catalonia has no other bank than the Spanish government”, acknowledged the Catalan government's Finance Minister Andreu Mas-Colell on the BBC. These requests for aid, heighten speculation about the size of the bail-out fund, which is expected to be around €18 billion. However, the Commission spokesperson said that the fund had “sufficient liquidity”. In 2011, the Spanish regions failed to make their excessive deficit reduction target: excessive deficit stands at 3.3% of GDP, when the objective had been to take it down to 1.3%. The regions are indebted to the tune of €145 billion, or 20% of the Spanish debt. (MB/transl.rt)