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Spain says won't be next to fall in euro crisis

Source: Reuters - Thu 7th Apr 2011

Spain will not follow ailing neighbour Portugal in seeking a European bailout, Spain's Economy Minister said on Thursday, hoping Lisbon's move will draw a line under Europe's debt crisis.

Caretaker Prime Minister Jose Socrates announced late on Wednesday that Portugal was asking for financing from the European Union, the third euro zone member to do so after Greece and Ireland last year. He argued the economic risks had now become too great to go it alone after borrowing rates soared.

The much-anticipated bailout could turn market attention back to Spain and its weak public finances, ahead of a three-year Treasury auction later.

"(The risk of contagion) is absolutely ruled out ... it has been some time since the markets have known that our economy is much more competitive," Spanish Economy Minister Elena Salgado told national radio station SER.

Spain on Wednesday cut its forecasts for growth for the next two years on the likely impact of higher interest rates and oil prices, ahead of an expected European Central Bank rate hike on Thursday.

Salgado argued that a quarter point move by the ECB would not endanger Spain's economy, which is already dealing with harsh public spending cutbacks and labour market reforms.

"The impact of a small rise in rates is very slow. Mortgages (in Spain) are only revised once a year and so the transmission (of a rate rise) is not immediate," she said.

Spain exited an 18-month recession at the start of last year but growth has stuttered since then. Economists and the central bank doubt the economy can grow as much as the government expects.

The government sees the economy expanding by 2.3 percent in 2012 and 2.4 percent in 2013, trimming earlier forecasts for growth of 2.5 percent and 2.7 percent.

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