SPANISH PRIME minister Mariano Rajoy has warned that his country runs the risk of being shut out of debt markets if it does not gain control over its finances.
In a plea to Spain’s regional governments to co-operate with his austerity drive, he said this was essential to avoid a bailout.
“What if the same thing happens to us as to those that haven’t been able to fund their debt on the markets or find money to cover their deficit?” he said in Madrid. “This is what is at risk at the moment.”
His remarks stand as a blunt admission that Spain is in grave danger of meeting the same fate as Ireland, Greece and Portugal, Europe’s other bailout recipients.
With the 17 regional bodies blamed for increasing Spain’s deficit, Mr Rajoy said they were being asked to do no more than the EU had asked of his government.
“We have to find that money outside, and it may be funded or not, and there are already countries that haven’t been funded, and that’s why we are taking these decisions and making these reforms.”
Although some senior figures in European circles are increasingly resigned to the likelihood of Spain needing external aid, there is anxiety that any rescue could lead to pressure on Italy.
In Brussels yesterday, European Council president Herman Van Rompuy said he may convene a special dinner meeting of EU leaders in advance of their next scheduled summit at the end of June.
The leaders have not met since the start of March. The situation in debt markets has worsened in the interim as anxiety escalates about the health of Spain’s banks and its record unemployment rate.
Amid the political clamour for measures to promote economic growth, the ascent of Socialist candidate François Hollande in the French presidential election has stirred doubt over Europe’s stability treaty. The collapse of the Dutch government adds to the uncertainty.
Euro zone sources point to the possibility of an rescue plan tailored to boost Spain’s banks while the government tries to maintain access to private financing for regular expenditure.
This reflects concern that Spain’s funding needs are too big for it to be taken out of markets completely.
Similar worries surround Italy, whose financing needs over three years are in the region of €900 billion.
Officials readily accept that sums would overwhelm the European bailout funds and the IMF.
As he acknowledged the necessity for economic growth, Mr Van Rompuy expressed frustration with the pressures on EU leaders.
“It strikes me that we sometimes face schizophrenic demands, with people telling us one day that a lack of fiscal discipline undermines market confidence, and the next day that fiscal consolidation kills growth,” he said in a speech.
“Structural reforms remain the main lever at our disposal. Their effects are not immediate nor can they be, but they will make a difference over time, and create jobs in due course. We must tell the truth. There are no magic formulas.”
