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Liquidity freeze problem for Spain-treasury, BBVA

Source: Reuters - Tue 15th Jun 2010

Spain's treasury secretary admitted on Monday a liquidity freeze on foreign markets was biting into some banks, while a banking leader suggested the problem was even more acute.

"It's definitely a problem" Treasury Secretary Carlos Ocana told a conference of business leaders in response to a question on difficulties faced by Spanish banks.

"The way to recover confidence is to take decisive and concrete measures" Ocana said.

Spain is implementing several major economic programmes at the same time to save itself from economic stagnation: a additional 15-billion-euro ($18.29 billion) austerity plan, a restructuring of the rigid labour market and a consolidation of its banking sector.

All are seen as key to ensuring a fragile economy pushes further away from a recession exited in the first quarter that has left an unemployment rate twice the euro zone average at 20 percent.

Spain's second-largest bank BBVA Chairman Francisco Gonzalez agreed the problems for Spain's sovereign debt were hindering the borrowing abilities of the country's companies and financial firms.

"If the Spanish state has difficulty in financing itself outside Spain, then the difficulties will be even greater for those in the private sector. For the majority of companies and Spanish financial firms, international capital markets are closed" he told the same conference.

Reform programmes have taken on added urgency because of pressures from bond markets concerned about contagion in the euro zone after debt-laden Greece had to be bailed out by the European Union.

However, Ocana denied rumours that Spain was set to call for financial assistance.

"Spain does not need additional financing from any international institution. The rumour is false and I deny it" he said.

The spread between the Spanish 10-year bono and the benchmark German bund widened at midday on Monday to 206 from 193 at the beginning of the day after a roller coaster week last week.

The government sale of a new benchmark 3-year bond on Thursday was deemed a success with solid demand but at a higher price, and markets are now looking ahead to a 16.2-billion-euro redemption due by the end of July.

Ocana said that Spain faced no problem in meeting its debt needs.

"Spain is a country with a low level of debt ... in that sense there are absolutely no problems in meeting its refinancing needs" he told reporters after the conference.

"It's a different thing entirely how markets are playing with confidence ... but there is absolutely no fundamental reason behind market volatility" he added.

BBVA's Gonzalez said Spain should control public spending and ensure transparency while implementing structural reforms in pensions, labour, health and education.

"Spain has three urgent tasks, one of which is to ensure its public finances are sustainable in the medium-long term by guaranteeing transparency and controlling public spending and debt" he said.

The second task is to implement structural reforms in key sectors to stimulate economic growth, while the third priority is a restructuring of Spain's financial system, he said.

Spain's financial sector is currently undergoing a wide-ranging consolidation which is due to be completed by the end of this month.

BBVA's Gonzalez said the sector is facing a "difficult and uncertain future."

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