Bloomberg News

Spain Needs Structural Overhaul Plus Austerity, Rajoy Says

December 12, 2011

(Updates with comments from Rajoy starting in second paragraph, bond yields in sixth.)

Dec. 12 (Bloomberg) -- Spanish Prime Minister-elect Mariano Rajoy pledged “important decisions” when his Cabinet meets for the first time on Dec. 23 as the economy will need structural changes as well as austerity moves to exit a three-year slump.

“Austerity alone isn’t enough to resolve our problems,” Rajoy said in a speech to party leaders today in Madrid, vowing to overhaul the labor market and the banking sector.

The People’s Party leader will be sworn in on Dec. 21 after defeating the ruling Socialists in a landslide on Nov. 20. Rajoy will seek to prevent Spain from following Greece, Ireland and Portugal in seeking a bailout amid surging borrowing costs and an economy poised for contraction with unemployment at a 15-year high 21.5 percent, the highest rate in the European Union.

“The European Central Bank’s last decisions helped provide relief but the best relief, as well as stable and sustainable economic growth, will come from our capacity to do our homework, controlling the public deficit and debt as well as private debt,” Rajoy said.

Spain still needs to finance itself this year and next, a task that’s currently difficult to do at a “reasonable” cost, the premier-elect said.

Yield Back Over 6 Percent

The yield on Spain’s 10-year benchmark bond today rose above the 6 percent level that prompted the ECB to start buying Spanish debt on the secondary market in August. The spread with the yield on similar German maturities widened to 396 basis points from 360 basis points Dec. 9, even as EU leaders agreed in Brussels on Dec. 9 on a new fiscal accord to deliver the region from its two-year debt crisis.

Standard & Poor’s last week put 15 European nations on watch for potential downgrades pending the outcome of the summit, saying it may lower Spain’s rating by as much as two levels. Moody’s Investors Service today reiterated its intention to revisit the ratings of all EU sovereigns during the first quarter of 2012, “in view of the continued absence of decisive policy measures despite the recent euro area summit.”

“A fundamental decision was taken which is to resolutely battle public deficit and debt,” Rajoy said, commenting on the Brussels summit. “A large part of Spain’s problems and of other countries as well come from the Maastricht Treaty’s fiscal consolidation criteria not having been respected.”

The Spanish economy will expand less than 1 percent this year and next, Rajoy said. The PP’s economy spokesman, Cristobal Montoro, earlier today told radio station Cadena Cope that Spain risks falling into a recession.

Once installed, Rajoy said he would quickly call a meeting with the leaders of Spain’s 17 semi-autonomous regions, whose finances threaten the central government’s deficit goals as they manage more than a third of public spending, including health and education.

Rajoy also proposed members of his party, Jesus Posada and Pio Garcia-Escudero, take over as speakers of the Congress and the Senate, the two houses of Parliament that re-open tomorrow.

--Editors: Jeffrey Donovan, Andrew Atkinson

To contact the reporter on this story: Angeline Benoit in Madrid at

To contact the editor responsible for this story: Craig Stirling at

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