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EU's Rehn says markets too pessimistic on Spain

Source: Reuters - Thu 23rd Dec 2010

Financial markets are underestimating Portugal's and Spain's ability to cope with their public debt and stimulate economic growth, the European Union's top economic officials was quoted as saying on Thursday.

EU Economics Monetary Affairs Commissioner Olli Rehn also told Finnish daily Helsingin Sanomat in an interview that the bloc had the means to contain the debt crisis, which so far has forced Greece and Ireland to seek multi billion euro bailouts.

Since the EU agreed on a 85 billion euro rescue deal for Ireland last month, investors have shifted to Portugal and Spain, seen as next weakest links in the 16-nation euro zone because of their rising debt and poor growth prospects.

"In the light of facts, Spain's and Portugal's ability to take care of state debt and stimulate economic growth is much better than what the markets currently assume," Rehn said.

Rehn also brushed off pointless any debate about a possibility of the euro zone breaking up or some nations leaving the single currency area.

"Speculation on the split of euro has no resonance in practical decision-making and political discussion."

On Tuesday ratings agency Moody's warned it may cut Portugal's rating by one or two notches due to its weak growth prospects and steep borrowing costs, denting the euro in currency markets.

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