Spain PM calls crisis meeting before bond test

 

Spain's Prime Minister and Economy Minister will hold a crisis meeting on the economy on Wednesday, as the country seeks a way to calm the concerns of investors driving its debt costs ever closer to unsustainable levels.

Mirroring moves in Italy in response to escalating bond market turmoil focused on the euro zone periphery, premier Jose Luis Rodriguez Zapatero and Elena Salgado will discuss developments on financial markets, his office said.

The meeting comes a day ahead of two Spanish bond auctions that will be a key test of appetite from investors wary of betting on an economy still struggling to gain momentum after a recession against a backdrop stubbornly high unemployment.

Zapatero has in recent days sought to adopt a more proactive stance on tackling a crisis that threatens to envelop Spain, calling an early election to "create political and economic certainty", delaying his holiday and signalling extra cabinet action on economic reforms.

Further reforms could be adopted after the next scheduled cabinet meeting on Aug. 19 and might include changes to corporate tax as well as measures to stimulate job creation, Spanish media have speculated.

An extra cabinet meeting is planned for Aug. 26, according to a report on Wednesday.

However, analysts do not expect any new measures to have a great economic impact before the elections, which are scheduled for Nov. 20.

DEBT COSTS NEAR RECORD HIGHS

Zapatero delayed his holiday to the south of Spain on Tuesday after markets dumped debt issued by the single currency bloc's higher-yield nations, sensing that European leaders had not put a lid on escalating crisis with Greece's second bailout.

After leaving Madrid later that day, the prime minister returned on Wednesday.

The cost of financing Spain's ten-year bonds eased to around 6.22 percent by late morning on Wednesday from as much as 6.45% earlier in the day, remaining within touching distance of euro era highs.

Analysts say if yields head much higher, markets could soon force Madrid to follow in the footsteps of Athens, Lisbon and Dublin in seeking external financial help.

"Hearing Zapatero had cancelled his holidays showed the situation was desperate. The 7% (yield) mark is a psychological barrier and is just not sustainable because it's far too costly to finance at these levels," said Jo Tomkins, analyst at consultancy 4Cast.

Government spokesman Jose Blanco will also attend the meeting, according to a release posted on the government's website.