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Spain to Present Budget Stability Plan to EU

Source: Bloomberg - Fri 6th Apr 2012
Spain to Present Budget Stability Plan to EU

Spain is preparing an outline of how it will comply with European budget-deficit rules, after its borrowing costs yesterday reached the highest since December, Economy Minister Luis de Guindos said.

Spanish bonds slid yesterday, leading losses among higher-yielding European government debt, as Spain's borrowing costs surged on concerns Prime Minister Mariano Rajoy may request a bailout. Rajoy spoke on April 4 of "extreme difficulty" after the nation with the euro area's fourth- biggest economy barely covered its minimum target at an auction.

The yield on Spain's 10-year benchmark bond rose as high as 5.844%, the highest since Dec. 13, and more than 4 percentage points higher than similar German maturities.

The 10-year yield has jumped nearly 1 percentage point since March 2, when Rajoy said the government would miss its budget-deficit target this year as it enters a recession, leading his country to replace Greece as the main focus of investors' concern in Europe's debt crisis.

Easier Deficit Target

The Partido Popular (PP), in power since December, persuaded euro-zone members to ease Spain's budget deficit target for 2012 to 5.3% of GDP instead of 4.4%.

The government forecasts Spanish public debt will surge to a record 79.8% of GDP this year as it imposes the deepest austerity in at least three decades.

Spanish borrowing costs are unlikely to remain at current levels long, the 52-year-old minister said.

"Requesting European aid is not on the table," de Guindos said. "Requesting aid would mean economic policies have failed and it would send a negative signal to the markets, it would be the worst possible solution, the last one to consider."

Spain is capable of exiting the crisis without external aid, and it makes no sense comparing the country to Greece as the two nations' situations are completely different, de Guindos said.

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