Spain says Italian political uncertainty weighs

Mon Dec 10, 2012 4:23am EST
 
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MADRID (Reuters) - Spain will suffer a contagion effect from Italy's new political turmoil and the government continues to study the need for outside assistance, Spanish Economy Minister Luis de Guindos said on Monday.

Spain's risk premium over Germany rose to 436 basis points on Monday after Italian Prime Minister Mario Monti announced he would resign and trigger early elections. The 10-year Spanish-German spread was up 20 basis points from Friday but still well below highs of over 650 bps hit in July.

"Every time there are doubts ... for example today in the case of Italy, when there are uncertainties about the political stability of a neighboring country such as Italy, that immediately affects us," de Guindos said in an interview with the Spanish state radio.

Of a potential request for European Central Bank intervention in the debt markets, de Guindos said: "It is an instrument that the Spanish government is considering and we will take the decision that is best for Spain."

For the ECB to intervene, Madrid would first have to seek help from the euro zone's rescue fund.

The comments by de Guindos came after Spain's biggest selling newspaper El Pais demanded in a front-page editorial that the government urgently request a bailout to help it ride out the economic crisis.

"Postponing a request for an intervention by the European Central Bank in the market is equivalent to condemning the economy to a prolonged recession which will dramatically turn into a major increase in unemployment," the left-leaning El Pais said in the editorial published on Monday.

Hit by an economic slump that has left one in four out of work and saddled with high debts, the center-right government faces a huge battle to rebalance its economy.

But with the country's 2012 funding needs covered, Prime Minister Mariano Rajoy has steered clear of applying for international aid. Such a request would trigger buying of the country's bonds under an ECB program.   Continued...

 
Spanish Economy Minister Luis de Guindos attends a joint news conference with Organisation for Economic Co-operation and Development (OECD) Secretary General Jose Angel Gurria (unseen) in Madrid November 29, 2012. REUTERS/Andrea Comas