Spain: Spain distances itself from Portugal and Ireland
November 25, 2010
After Ireland's request for a European bailout package contagion rumours spread to the Euro area periphery and investors' eyes turned on Spain. Deputy Finance Minister Jose Manuel Campa stated that the country's funding situation for the rest of the year remains ?comfortable?. Spain's central government budget deficit narrowed by almost half in the first 10 months of the year, and the government pledged to meet the budget-deficit target of 9.3% of GDP this year and next year's goal of 6%. Spanish Finance Minister Elena Salgado acknowledged that Spain is experiencing soaring borrowing costs as investors remain concerned that the country is headed for a Greek or Irish-style debt crisis. Following on Ireland's bailout, speculation was rife that Portugal and Spain may also need help and Spain's 10-year bond yield surged to 5.12%. At this yield, the spread over German bonds was at the highest level witnessed since the adoption of the euro. Owing to the recent increase in the country's financing costs, the government announced that it would reduce upcoming debt sales. While the finance ministry will not cancel any auctions this year, it will reduce the size of the planned issues, as the better-than-expected budgetary performance reduced the public sector's financing requirements. Meanwhile, the Treasury must still raise some EUR 8 billion (USD 11 billion) this year, according to the state borrowing plan.