Spain praised for pushing on with reforms

City A.M. Reporter
SPAIN is on the right path to overcome recession and regain investor confidence, and its public accounts can handle the extra weight of European aid designated for banks, Germany’s finance minister said in an interview published yesterday.

Wolfgang Shaeuble praised the Spanish government’s tough steps to stabilise public finances, and said the state can cope with the extra burden of taking on European debt to bail out its troubled banks.

However, he would not be drawn on the possibility of a banking union.

“To talk of what will happen when the future banking supervisor is functioning is to build castles in the sky. Right now we must work with what we have,” he told Spanish newspaper El Pais.

“The fundamental figures and the intention to reduce the deficit shows that we should not exaggerate the cost of the bailout on public accounts. Spain is on the right path.”

Spain’s government has applied for up to €100bn (£79.3bn) from the Eurozone to recapitalise its weaker banks, hit by a burst property bubble, which would add around 10 percentage points to the country’s debt levels if taken in full.

Madrid expects Spain’s debt ratio as a percentage of gross domestic product to be around 80 per cent, excluding the bank bailout, by the year-end, in line with the European average.

But Schauble praised Spanish efforts to bring down its borrowing and maintain access to debt markets.

“Spain is doing a great deal to break the vicious circle and strengthen market confidence,” he said.

Meanwhile Italian prime minister Mario Monti hit out at opponents of his labour market reforms, arguing that complaints about government policy undermine his efforts and push up borrowing costs.