MADRID- Nov 06, 2012 (AFP)Spain's Prime Minister Mariano Rajoy on Tuesday all but ruled out seeking a bailout in 2012 but vowed to do so if faced by persistent, high borrowing costs.
Rajoy has kept world markets on edge as he ponders whether to trigger a rescue, in which the European Central Bank would buy Spanish bonds to drive down Madrid’s financing costs.
But the conservative prime minister gave the clearest sign yet that he sees no reason to trigger a bailout this year.
Spain had nearly completed the bond issues required to finance the government’s operations throughout 2012, he said.
“For now we have covered practically the entirety of our issues through this year,” Rajoy said.
By October 23, Spain had already issued a gross 85.9 billion euros ($110 billion) in medium- and long-term bonds, equal to 95.1 percent of the entire 2012 budget target.
“If we see that during a long period Spain is financing itself at very high prices then we would have to ask for it,” the prime minister conceded.
But the crucial question, the Spanish leader said, would be whether any European Central Bank intervention significantly curbs the country’s borrowing costs.
Spanish borrowing costs have already tumbled since the ECB outlined plans in September to buy an unlimited amount of stricken states’ bonds if they submit to strict eurozone conditions first.
Spanish 10-year bond yields, which spiked at a dangerous level of more than 7.0 percent in the mid-summer, were hovering in mid morning at an elevated but much lower level of nearly 5.8 percent.
Investors were demanding an extra return — also known as a risk premium — of 433 basis points (4.33 percentage points) on Spanish bonds when compared to equivalent, safe-haven German debt.
Rajoy said key question for Spain before it seeks assistance is whether ECB action would bring down the risk premium to 200 basis points or leave it at 400 basis points.
The problem was not just the conditions to be attached to any formal eurozone bailout, nor securing the agreement of all European Union members, he said.
It was also “how much the risk premium will come down, because if it only serves for the premium to stay at 400 and not come down to 200 then obviously that’s not the same thing,” Rajoy said.
The Spanish leader said his bailout decision would depend entirely on whether it was in the general interest of his country.
“It is a path that is open. I don’t renounce using it if it is in the interests of Spain. For the moment we have not decided to adopt it but it is a possibility that we have open.”
Rajoy, who performed a U-turn on his pre-election promises by pushing up sales taxes to curb the public deficit, said he hopes to cut taxes in 2014 when the government anticipates a return to economic growth.
“I am not thinking about taking any decision to raise taxes, I hope it won’t be necessary,” he told Cope radio. “I hope to be able to lower them and I hope to be able to do it in 2014.”
Rajoy said he would not cut public workers’ salaries next year, after freezing wages this year and also stripping them of their Christmas bonuses, worth almost one month’s income.