Bloomberg News

Salgado Says Spain Wants ECB to Keep Purchasing Its Debt

November 18, 2011

(Updates with additional comments starting in second paragraph.)

Nov. 18 (Bloomberg) -- Finance Minister Elena Salgado said Spain wants the European Central Bank to continue buying bonds “powerfully” to ease tensions on debt markets even as she said the nation’s debt is sustainable.

“The debt-purchase program on the secondary market remains active and we want it to continue powerfully and sufficiently to try to moderate tensions on sovereign-debt markets,” Salgado told a news conference in Madrid today.

“I trust in the good judgment of the ECB, which will do everything possible to guarantee the stability of our currency and the stability of the debt markets,” Salgado said. She also said the ECB is independent and it’s up to it to decide how much debt it should buy.

Spain is battling to reduce the euro area’s third-largest deficit as economic growth stalls. Spain and Italy’s borrowing costs surged today after Germany rejected a French call to deploy the ECB to the rescue of indebted nations. The yield on Spain’s 10-year benchmark bond rose to as high as 6.90 percent, approaching the 7 percent level that pushed Greece, Portugal and Ireland into bailouts.

Separately, ECB President Mario Draghi said today in Frankfurt that the central bank would quickly lose credibility if it departed from its primary role of keeping prices stable.

Finance Costs

The extra yield on Spanish 10-year bonds compared with German equivalents widened to as much as 503 basis points today, before the ECB was said to buy Spanish paper, narrowing the spread to 483 basis points. Three people with knowledge of the deals said the central bank was buying Spanish debt, and the ECB declined to comment.

Salgado said there is “absolutely no concern” regarding Spain’s capacity to continue financing itself on the markets. Spain’s average cost of financing is less than 4 percent, close to the historic minimum of just above 3.5 percent, and the nation has issued 89 percent of the bonds it plans to sell this year, she said.

There is demand for Spanish debt and the higher borrowing costs only apply to a small part of issuances and “don’t at all affect the sustainability of our debt,” Salgado said.

The finance minister said the government’s priority is to meet its 2011 deficit goal and that it anticipated slower growth by taking extra fiscal consolidation measures in August. The central government also has a 3.2 billion-euro to 3.4 billion- euro margin of maneuver in the amount it had budgeted for the payment of interest on debt, she said.

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said today Spain’s problems have become “more urgent.” Apart from its fiscal consolidation, Spain must make its financial system more robust and reform its labor market, he said during a conference in Madrid today.

--With assistance from Emma Ross-Thomas in Madrid. Editors: Fergal O’Brien, Andrew Atkinson

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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