'Spain will not seek financial aid'

2010-12-06 11:17

Paris - Spain's troubled economy will not follow Greece and Ireland in seeking international financial aid, Finance Minister Elena Salgado said in a newspaper interview published on Monday.

Following weeks of market turbulence triggered by fears that Spain could be next in line for a financial debacle, Salgado emphatically ruled out Madrid taking a bailout.

"No", she told Les Echos business newspaper, "because our (economic) fundamentals do not justify it."

Greece fell to major imbalances in its public accounts not only due to the crisis while Ireland's troubles "were caused by its banks," she added.

She said that the Spanish fund to help restructure insolvent banks would be sufficient in case of large losses.

"Its capacity is €99bn, and only €11bn has been mobilised so far. Given that the interest rate is seven percent, there is little risk that this facility will be used needlessly," said Salgado.

In the wake of the Ireland rescue, driven by Dublin bailing out its insolvent banks, investors have begun to get more anxious about Spain's heavily indebted banks which were wounded by the bursting of the country's property bubble.

Investors were not reassured by Spanish government statements that the country will be able to master its fiscal difficulties and relaunch growth, and drove up interest rates the state must pay to borrow to record highs.

Even the European Commission expressed doubts last week about the Spanish government's ability to reduce its public deficit to 6.0% of gross domestic product next year from this year's target of 9.3%.

Spanish Prime Minister Jose Luis Rodriguez Zapatero then announced on Wednesday his government would sell 30% of the state-owned lottery, 49% of airport management company AENA, scrap a jobs subsidy and lower taxes on small- and medium-sized businesses.

Coupled with stepped-up purchases by the European Central Bank at the end of last week, yields eased on Spanish government bonds.