Spain Calls on Germany to Boost Growth

Euro Zone Faces 'Winter of Discontent': Pro
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Mariano Rajoy has called on Germany and other creditor countries in the euro zone to do more to stimulate growth, arguing that a switch to a more expansionary policy would boost economic recovery across the single currency area.

"I think that in this moment, when there is a need for growth, those who are able to implement growth policies should do it," the Spanish prime minister told the Financial Times in an interview. "What is clear is that you cannot ask Spain to adopt expansionary policies at this time. But those countries that can, should."

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Launching a vigorous defense of his own economic crisis management, Mr Rajoy also insisted that Spain was right not to request aid from the European Central Bank last year – and ruled out any such move for the time being.

Facing soaring unemployment and a second year of recession, Spain has come under strong pressure from investors to trigger the ECB's outright monetary transactions program. This would allow the bank to buy Spanish bonds in the secondary market, driving down the cost of borrowing for Madrid and, by extension, the country's private sector.

Mr Rajoy suggested he would only consider OMT in the event of fresh market turmoil. "The option is there, and it would be absurd to rule it out for all time," the prime minister said. "But at this point we believe that it is not necessary."

Sounding a defiant note, Mr Rajoy added that his stance on ECB intervention was not only the "settled view" within his government, but also had the support of "most sectors of the economy" as well as Spanish public opinion.

The Spanish government has been sharply criticized at home and abroad for its response to the country's economic crisis, and in particular to last year's turmoil in the banking sector. In June, Madrid was forced to seek a €100 billion bailout from the EU for its troubled lenders – despite repeated assurances from senior Spanish officials that the sector was in good health.

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Mr Rajoy insisted that any doubts over the current state of the Spanish banking system were misplaced. "I am absolutely convinced that Spanish financial institutions will not require any more funds than were given already," he said, arguing that Spain's lenders had already been forced to reveal all their problematic assets in a "complete striptease".

The Spanish leader argued that the actions taken last year by the ECB and euro zone governments had put to rest any doubts over the future of the single currency, insisting the euro was "absolutely irreversible". He also struck a positive note on the recession-plagued Spanish economy, pointing out that the country's businesses were regaining competitiveness and that exports were on the rise.

"2014 will be a year of economic growth and growth in jobs, and the second half of 2013 will also be a bit better, as long as there are no turbulences in the financial markets," he said.

Mr Rajoy's upbeat view from Madrid contrasted with data showing that the German economy shrank on a quarterly basis in the final three months of 2012, according to initial growth estimates by the Federal Statistics Office.

In its first assessment of 2012 gross domestic product, the statistics office said the German economy grew 0.7 per cent last year, down from 3 per cent in 2011. Its statisticians confirmed that the data suggested the economy had contracted about 0.5 per cent in the final quarter, adjusted for working days.

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The dip is the first such quarterly contraction since the last quarter of 2011, and was caused mainly by a sharp drop in plant and machinery investment. Although Germany is also in an election year, Mr Rajoy's plea was likely to fall on deaf ears in Berlin. Wolfgang Schuble, finance minister, on Tuesday reiterated his government's aim to present a balanced federal budget.