GO
Loading...

Spanish leaders in economy talks with EU official

MADRID -- Spain's Prime Minister Mariano Rajoy and Economy Minister Luis de Guindos were to hold separate rounds of talks Monday with European commissioner for monetary affairs Olli Rehn to discuss the country's efforts to manage its stricken finances and whether it will need to seek further financial aid from the region.

The meetings come days after Spain announced new austerity plans and the results of bank stress tests in a bid to convince international lenders and investors that it can control its finances.

In its draft 2013 budget presented Thursday, Spain's said it hoped to make some (EURO)40 billion in savings. Independent stress tests on its banking sector presented a day later showed seven financial entities will need to shore up their capital by some (EURO)59.3 billion ($77 billion), considerably less than the (EURO)100 billion in rescue package granted some months ago by its eurozone partners.

Spain, in its second recession in three years with near 25 percent unemployment, is battling to fulfill pledges to the EU to reduce its budget deficit to 6.3 percent this year, 4.5 percent next and year and 2.8 percent in 2014.

But on Saturday Finance Minister Cristobal Montoro admitted that aiding troubled banks means Spain's deficit this year will be 7.4 percent, not 6.3 percent. He also revised last year's deficit upward from 8.9 percent to 9.4 percent for the same reasons. The EU has yet to comment on these changes.

Spain is at the center of Europe's financial crisis being the fourth-largest among the 17 countries that use the euro. Besides a shaky banking sector, the country is struggling to support its heavily indebted regional governments

The country is also under pressure to take up the ECB offer to buy unlimited amounts of government bonds to help lower borrowing costs for countries struggling to manage their debts. To get help from the ECB, Spain must first ask for assistance from Eurozone group. So far, Madrid has been reluctant to ask for fear of the conditions the other countries will attach.

In midday Monday trading, the interest rate on Spain's benchmark 10-year-bonds edged down by 0.11 percentage points to 5. 87 percent Monday while Madrid's IBEX index was up 1.3 percent.