Spanish PM says European debt crisis 'has passed'

The European debt crisis which pummeled the euro and rattled global markets is over, Spanish Prime Minister Jose Luis Rodriguez Zapatero said in a newspaper interview published Wednesday.

"I believe that the debt crisis affecting Spain, and the euro zone in general, has passed" he told the Wall Street Journal.

Spanish PM says European debt crisis 'has passed. Spanish PM says European debt crisis 'has passed'.The Socialist prime minister said one lesson learned from the recent market turbulence in the eurozone is that a single monetary policy is not enough for the 27-nation European Union.

"We require further convergence to boost competitiveness and stronger principles to implement balanced economic and fiscal policies" he said.

The European debt crisis crystalised late last year when Greece's new Socialist government said the country 2009 public deficit would be equal to 12.7 percent of gross domestic product, more than twice the previously published figure.

The announcement sparked investor doubts over the ability of Greece and other highly indebted nations of the eurozone such as Portugal, Spain and Italy to slash their deficits, rattling stock and bond markets around the globe.

Since then European nations have introduced austerity measures, including tax hikes and public sector pay cuts, to slash their public deficits.

Earlier this year, Zapatero implemented the sharpest spending cuts since Spain returned to democracy following the death of dictator Francisco Franco in 1975.

The cuts aim to bring the public deficit down to the eurozone limit of 3.0 percent of GDP by 2013 from 11.2 percent last year.

The government has also introduced labour market reforms which cut Spain's high cost of firing workers and gives companies more flexibility to reduce working hours and staff levels in economic downturns.

The government argues the reform will help reduce an unemploymebt rate that has soared to 20 percent due to the collapse of a real estate bubble but unions have called a general strike for Wednesday to protest the measure.

"It's evident that the Spanish government has taken decisions that, in our opinion, are essential to confront the challenges that the Spanish economy faced during the crisis" he said.

Zapatero's socialists are seven seats short of a majority and are currently in talks with smaller, regional parties whose support he will need to pass a budget for next year that includes many unpopular austerity measures.

He said the negotiations are well advanced in parliament and the government plans to submit its proposed budget to the assembly in the coming days.

The government plans to cut spending at its ministries by 15-16 percent next year, the prime minister said.

Zapatero said the publication of EU-wide bank stress tests at the end of July along with the progress the country has already mad ein reducing its deficit had helped restore market confidence in the country.

"In spite of the real estate crisis, banks stood like rocks due to solid provisioning and the strictest bank supervision within the euro zone" he said.

"There's a contradiction in perceptions, because Spain's financial system has been among the best resisting the crisis within the euro zone."

All eight major Spanish banks passed the EU's bank stress tests on their ability to weather a crisis although five out of 19 regional lenders failed.