Rajoy calls for recognition of Spain’s reform

Tim Wallace
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SPANISH Prime Minister Mariano Rajoy hit out at French and Italian ministers yesterday for talking down the economy, as new data revealed the depths of the country’s recession.

“Spain’s future is at stake,” Rajoy said after Tuesday’s market turmoil, explaining: “The problem is that the markets can lend or decide not to.”

Official figures yesterday showed industrial output in February was down 5.1 per cent on the year – the second fastest fall in two years, and a steeper drop than the 4.3 per cent decline in January.

Consumer durables output dropped 14.8 per cent, followed by capital goods production at 10.6 per cent.

“The declines in these components highlight the strains on both private consumption and investment,” said BNP Paribas’ Ricardo Santos.

“We expect GDP to fall 0.8 per cent in the first quarter, following the 0.3 per cent fall in the fourth quarter.”

Confidence in the economy and the government’s ability to pay its debts must be restored if the crisis is to end, and other European leaders have undermined that, Rajoy said.

Italy’s Mario Monti blamed Spain’s financial problems for renewed tensions on financial markets, and French finance minister Francois Baroin has used the country as an example when explaining how high debts get governments into trouble, prompting a reprimand from Rajoy.

“We hope [other leaders] assume their responsibilities and are more cautious in their statements. We don’t talk about other countries. We wish other EU and Eurozone countries the best. What is good for Spain is good for the Eurozone.”

The German government was more supportive, with a finance spokesman expressing regret that “the markets have not yet fully recognised Spain’s enormous reform efforts”.

Since Rajoy was elected he has taken significant steps to cut the budget deficit and improve labour market flexibility, but worries persist over the governments’ debts – borrowing costs rose to 5.99 per cent on 10-year bonds on Tuesday as investors panicked.

■ €27bn in spending cuts announced in last month’s budget
■ Announced another €10bn in “efficiency savings” in health and education budgets this week in an effort to reassure worried investors
■ Moved to end national wage deals, allowing wages to fall
■ Reduced labour market regulations, making it easier for firms to fire workers