Finance minister says troubled EU partner 'needs the confidence of the markets'
EU paymaster Germany said yesterday that Spain does not need a European bailout, dousing financial market expectations that Madrid will gain early relief from European Central Bank bond-buying.
German Finance Minister Wolfgang Schaeuble's comment, contrasting with pressure from France for Madrid to avail itself of ECB help, seemed aimed at deterring Spanish prime minister Mariano Rajoy from applying for assistance soon.
"Spain needs no programme because it is doing the right thing and will be successful," Schaeuble told the Foreign Press Association in Berlin, saying he was in full agreement with the Spanish government.
"What Spain needs is the confidence of the financial markets and that is where Spain has real problems," he added.
In Madrid, Spain's deputy prime minister denied a Reuters report that the government is considering freezing pensions as it races to cut spending and meet likely conditions for any rescue package.
"The prime minister has said publicly that the first thing he did when taking power was bring pensions up to date and that should be respected . . . in his exact words, it would be the last thing he would touch," Soraya Saenz de Santamaria told reporters.
Reuters also quoted sources as saying Spain was considering speeding up the raising of the retirement age to 67 from 65.
The government is committed to a 1pc increase in pensions and a 3pc regular inflation catch-up by the end of the year. Suspending inflation indexation might enable Rajoy to argue he had not "touched" pensions while saving money in real terms.
Spain's borrowing costs have begun to creep up again as government officials and eurozone partners have sent confusing signals over whether Madrid would apply for and receive a precautionary credit line.
The country faces a €27.5bn debt redemption hump in late October, but EU officials said they did not expect Mr Rajoy to submit an application before regional elections in his home region of Galicia on October 21 -- too late to receive ECB backing by that deadline.
The ECB has conditioned its willingness to buy shorter-term bonds in the secondary market on vulnerable countries applying for assistance, negotiating a memorandum of understanding and accepting strict conditionality and international supervision.
Italy may soon come into the frame too.
Late on Thursday, it produced some dismal forecasts, predicting the economy would shrink this year by 2.4pc, twice as much as the previous projection of a 1.2pc drop, made in April.
It also hiked its forecast for the 2012 budget deficit to 2.6pc from 1.7pc.
The latest turn of events demonstrates that the period of calm the ECB has bought the eurozone by promising to intervene to lower borrowing costs may be short-lived unless it can back up its words with actions. (Reuters)