Bloomberg News

Spain Needs Euro Region Pact to Save Nation’s Solvency, PP Says

November 23, 2011

(For more on the sovereign-debt crisis, see EXT4.)

Nov. 22 (Bloomberg) -- Spain needs a euro-region accord to “save and guarantee the solvency” of its debt amid surging bond yields, said Maria Dolores de Cospedal, deputy leader of the People’s Party, which won the Nov. 20 general election.

“Spain cannot continue financing itself at 7 percent,” Cospedal told reporters late yesterday after a meeting of the party’s executive committee in Madrid. “So an agreement through a joint euro-zone operational strategy to save and guarantee our sovereign debt has to come from the European institutions.”

PP leader Mariano Rajoy, who won’t take office until the second half of next month, spoke to German Chancellor Angela Merkel yesterday. He told her that “those countries that meet their obligations and responsibilities must be helped by European institutions,” said Cospedal, who is also president of the region of Castilla-La Mancha.

Spain’s 10-year borrowing costs rose to 6.553 percent yesterday after the PP, which campaigned on pledges to slash spending and overhaul the economy, won the biggest majority in three decades. In his acceptance speech, Rajoy warned Spaniards to brace for hard times, and said he hadn’t promised any “miracles.”

A PP official, who declined to be named in line with party policy, said the party wants Europe’s rescue facilities to be fully developed so that they can buy Spanish debt in place of the European Central Bank, which started purchasing Spain’s bonds in August.

Draghi’s Call

ECB President Mario Draghi also called on euro-region governments on Nov. 18 to implement the changes they have agreed to make in order to bolster the European Financial Stability Facility with more funds and more flexible tools. He resisted requests from politicians including Spanish Prime Minister Jose Luis Rodriguez Zapatero to step up bond purchases.

“What the PP is doing is asking for more time to implement reforms,” Javier Diaz-Gimenez, an economics professor at IESE business school, said in a telephone interview. “The mere existence of an EFSF that’s funded would be enough to relax the markets.”

Spain auctions three-month and six-month bills today in the first test of investor demand for new securities since the election on Nov. 20. The Treasury aims to sell as much as 3 billion euros of bills, it said yesterday. Last time Spain sold debt on Nov. 17 it paid almost 7 percent to sell a bond maturing in January 2022, the most since joining the euro region in 1999.

Rajoy’s Majority

Rajoy won the biggest parliamentary majority of any government since 1982, gaining 186 seats in the 350-seat legislature and handing the Socialists their worst defeat since Spain returned to democracy in 1978. The pro-business party inherits a stalled economy with a 23 percent jobless rate, a banking system that’s squeezing credit and a deficit of more than twice the European Union’s limit.

Spaniards voted for “austerity,” and the country has a “national duty to strengthen the euro,” Rajoy told the meeting of party leaders, according to the text of the speech distributed by e-mail afterwards.

Rajoy also spoke to Zapatero yesterday to coordinate the handover, which is expected to take place by Dec. 24, Cospedal said. Parliament is due to reconvene on Dec. 13, and the PP will start work on the transition tomorrow, with Soraya Saenz de Santamaria overseeing efforts, Cospedal said.

“He made clear to the outgoing prime minister that any decisions that may need to be made in this period to defend the general interest of our country, he will have the support of Mariano Rajoy,” she said. “He made that very clear.”

The European Commission said it had no knowledge of any Spanish request for aid or plans to seek it.

No Aid Sought

“There has not been any request for aid from Spain,” Amadeu Altafaj, economic policy spokesman at the commission, the EU’s executive arm in Brussels, said yesterday by telephone. “We are not aware even of any intention to make such request.”

Alvaro Nadal, the party’s economic secretary, said on Nov. 20 that the PP wants Europe to have “sufficiently appropriate liquidity instruments for those countries that do their homework, only for those that do their homework.”

Former Prime Minister Jose Maria Aznar, who remains the PP’s honorary chairman, said yesterday in an interview with Bloomberg Television that the ECB may have to become a lender of last resort to avert a “disaster,” as delays in dealing with the crisis have left Europe without any “good options.”

--With assistance by Charles Penty and Marta Marino in Madrid. Editors: Craig Stirling, James Hertling

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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


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