Tags: Spain Minister Too Early to Drag in Bondholders

Spain Minister: 'Too Early' to Drag in Bondholders

Wednesday, 24 Nov 2010 09:23 AM

The European Union must speed up common economic governance policies but 2013 is too early to start involving private sector creditors in euro zone crisis mechanisms, the Spanish economy minister said on Wednesday.

"I don't believe Spain is at risk, but all coordinated action within the European Union is welcome. In fact, we must speed up the move toward common economic governance," Elena Salgado said in a telephone interview with Reuters.

Salgado said there must be better regulation of financial markets, but it's too early to talk of the implementation of any plan that would force private investors to share the pain of future euro zone bailouts.

"We don't think this idea is quite appropriate right now, including after 2013," she said.

EU leaders agreed at a summit on Oct. 28 that they would look to change the EU's treaty to introduce a permanent system for handling financial crises from mid-2013, when the current, temporary system is scheduled to expire.

German insistence on a mid-2013 deadline for having a permanent mechanism in place, with private bondholders sharing in writedowns if necessary, won the day.

Salgado's comments that 2013 is too early to bring in such a mechanism is the first open indication of dispute since the summit.

A German government document obtained by Reuters shows Germany now wants euro zone sovereign bonds to include private sector liability clauses from 2011 to ensure a smooth transition to a new rescue mechanism from 2013.

It is unclear whether Germany's latest idea will be accepted by other EU leaders, who will discuss it in mid-December.

 

SPIKING YIELDS

Investor concerns that highly indebted euro zone periphery economies, especially Spain and Portugal, would follow Ireland and request aid have sent sovereign debt yields spiking to their highest levels since the euro was created.

The premium investors demand to hold Spanish 10-year bonos over the German Bund rose to the euro lifetime high on Wednesday at 260 basis points, while the cost of insuring against default also hit record levels.

While the European aid kitty is sufficient to bail out Ireland, which is expected to ask for 80 billion to 90 billion euros in loans, the euro zone's fourth largest economy would need a much larger helping hand if forced to ask for help.

"These speculative attacks are against the euro, and there will always be those that attempt to make quick money. The financial markets must be better regulated," Salgado said.

Spain's economy in nominal terms is larger than those of Greece, Portugal and Ireland combined.

The minister said the best way to defend against speculative attacks was to implement necessary austerity measures and structural reforms.

"The austerity plan we have in place is extremely rigorous and is producing the results we had hoped for. We will continue with a reformist spirit, not only on the reforms we've already passed but will pass in the next few weeks and months."

Spain passed its 2011 budget last month, and the government expects to deflate the public deficit to 9.3 percent of gross domestic product this year and to 6 percent of GDP in 2011 from 11.1 percent in 2009.

Many economists believe the government's deficit figures are based on overly optimistic growth forecasts. Spain's economy stagnated in the third quarter and the government expects it to shrink 0.3 percent this year.

© 2017 Thomson/Reuters. All rights reserved.

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The European Union must speed up common economic governance policies but 2013 is too early to start involving private sector creditors in euro zone crisis mechanisms, the Spanish economy minister said on Wednesday. I don't believe Spain is at risk, but all coordinated...
Spain Minister Too Early to Drag in Bondholders
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2010-23-24
 

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