Spain sounds alarm on risk premium

Spanish Prime Minister Mariano Rajoy sounded the alarm Wednesday after his country’s sovereign risk premium hit a euro era record, and also warned against a Greek exit from the 17-nation eurozone.

Uncertainties over Greece prompted investors to pour their money into safe-haven German bonds while fleeing eurozone nations seen most at risk, including Spain, which has the fourth biggest economy.

As a result, the yield on Spain’s benchmark 10-year government bonds soared to a peak of 6.51 percent, a danger level widely considered too high for the state to afford over the longer term.

The difference when compared with equivalent German debt was 507 basis points — the highest since the euro’s launch in 1999.

“The risk premium has gone up a lot, and that means it is very difficult to get financing and it is very difficult to do so at a reasonable price,” Rajoy told reporters in parliament.

Spain and Europe had to act, said the conservative premier who is pushing through an austerity programme despite recession, a 24.4-percent jobless rate and a banking crisis so as to meet deficit-cutting targets.

“In Spain, I think the measures we are taking are the measures that must be taken,” he said.

Spain was determined to cut public spending because it could not spend money it did not have, especially at a time when credit was hard to come by, he said.

Madrid was also acting to reform the economy to make it more competitive, and it had introduced reforms of the financial system to clean up banks’ balance sheets, Rajoy added.

“Austerity yes, growth too,” Rajoy said.

“But I would also like a clear, forceful message in defence of the euro project and an affirmation of the sustainability of public debt of all the European countries that are subjected to this talk,” he added.

The Spanish leader underscored his support for Greece to remain in the single currency zone.

“I don’t want Greece to leave the euro,” Rajoy said.

“I think it would be an enormous mistake. It would be bad news. And I think we have to guarantee the sustainability of public debt and then all of us comply with our commitments.”