Spanish Economy Minister Luis de Guindos ruled out seeking a bailout hours before Standard & Poor’s cut the country’s credit rating to three levels above junk and a report showed unemployment jumped close to a record.
“Nobody has asked Spain, either officially or unofficially” to turn to Europe’s bailout mechanisms, he said in an interview in Madrid late Thursday. “We don’t need it.”
Spanish unemployment, already the highest in the European Union, rose to 24.4 per cent in the first quarter, just below the 24.55 per cent record of March 1994, the National Statistics Institute said Friday. The increase in first-quarter joblessness will mean EUR953 million (US$1.3 billion) of lost revenue for the government, the tax inspectors association said Friday.
De Guindos spoke at the end of a month that has seen Spanish bond yields rise above 6 per cent for the first time since early December on concern that banking losses will swamp the government. That sparked speculation that Spain will need to seek an international rescue for its lenders and prompted one minister to call on the ECB to buy the country’s bonds.
“This is not the real cure for the problems and the volatility of the market,” de Guindos said. “I don’t think that we need any further liquidity injections after the two LTROs that the ECB has implemented over the last three or four months.”
Just hours after de Guindos spoke, Standard & Poor’s cut its rating on Spain by two levels to BBB+, citing concern that the country will need to pour more money into its lenders.
The yield on Spain’s 10-year benchmark bonds rose 13 basis points to 5.96 per cent at 11:31 am in London, pushing the spread with similar German maturities to 429 basis points from 415 basis points Thursday. The country’s benchmark IBEX 35 stock index erased early declines and advanced 0.4 per cent to 7056.6.
The downgrade “raises the chance of Spain accessing external official funding for its banks alongside a robust external audit,” London-based Barclays Capital analysts Marcus Widen and Laurent Fransolet wrote in a note Friday.
Spain is sticking to its line that austerity should be the main driver of policy as it tries to quash concerns that it will be pushed to follow Ireland, Portugal and Greece into a bailout. As French presidential frontrunner Francois Hollande presses to renegotiate a euro-wide fiscal treaty backed by German Chancellor Angela Merkel, de Guindos said that Europe cannot afford to twin such a pact with stimulus measures.
“A growth pact has to be focused on structural reforms,” de Guindos said. “I do not see that the growth pact should involve any sort of fiscal boost or stimulus.”
ECB bond purchases would not help to calm European markets either as governments instead need to show how they can fix their economies, de Guindos said.
“We have to put on the table a much more comprehensive growth programme that has to be much more focused on performance on the structural side,” he said.
The International Monetary Fund said on April 17 that budget deficits will persist till at least 2017 in Spain, where the economic recession will be deeper than in other euro-region countries. The IMF forecasts a 1.8-per cent contraction this year and growth of 0.1 per cent next year.
“The rise in unemployment is a reflection of the deterioration in economic conditions and puts additional pressure to implement austerity at a faster speed,” said Fadi Zaher, a fixed-income strategist at Barclays Wealth in London. “Austerity and growth might not go together in the short term but austerity will help in the longer term, so you need it, otherwise you’re delaying the recovery.”