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SPAIN

Finance Minister: Spain stronger than its debt

German and Spanish finance ministers sought to contain fears for the eurozone on Tuesday, saying that Spain's soaring borrowing costs did not correspond to its economic strength or the "sustainability of its public debt."

Finance Minister: Spain stronger than its debt
Photo: DPA

“The current level of interest rates prevailing in the sovereign debt market does not correspond to the fundamentals of the Spanish economy, its growth potential and the sustainability of its public debt,” the ministers said.

Earlier on Tuesday, borrowing costs on the secondary market for Spanish 10-year bonds had risen to above 7.6 percent, well higher than the seven percent considered unsustainable and that has pushed others to seek EU bailouts.

The joint statement by Wolfgang Schäuble and Luis de Guindos came after talks held in Berlin amid growing speculation – hotly denied – that Madrid is on the verge of seeking a full-blown sovereign bailout.

The two ministers also stressed “the importance to work – together with European partners – on the quick implementation of the European Council decisions of June 29.”

This followed confusion and fury after Madrid said in a statement that France, Italy and Spain had agreed that emergency financial reforms agreed by the eurozone be immediately applied.

France and Italy later angrily denied they had signed up to such a statement.

The June accord paved the way for the eurozone’s future €500 billion bailout fund to recapitalise ailing banks directly, without adding to the national debts of struggling countries.

The statement also said that Spain had taken “important steps to put its economy back on track.”

Such reforms, especially in fiscal and labour market policy, were “vital for the Spanish economy to achieve a sustainable growth path and to regain competitiveness,” the ministers added.

Berlin has gone out of its way to praise the economic reforms carried out by Spain and urged them to continue along this path to restore competitiveness.

The statement also said the ministers agreed that the EU deal to plough as much as €100 billion into Spain’s stricken banking system was crucial to restore confidence in the country.

This will “contribute to breaking the vicious circle between the banking and sovereign debt crisis,” the statement added.

One of the main problems Spain has faced is that bailing out its ailing banking system has pushed up its own debt, reducing market confidence in its economy.

The EU bailout aims to recapitalise the banks and allow Madrid to get on with tackling its other economic problems.

De Guindos will hold talks with his French counterpart Pierre Moscovici on Wednesday for what a Spanish government source billed as “a routine meeting.”

Spain’s economic difficulties sent stocks in Madrid and the euro tumbling on the market on Tuesday as traders fretted it could be the next domino to fall in the two-and-a-half year eurozone debt crisis.

AFP/jcw

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ECONOMY

German cabinet agrees record levels of new debt for 2021

The German government agreed Wednesday to take on record borrowing this year to weather the economic blow of the coronavirus pandemic.

German cabinet agrees record levels of new debt for 2021
Finance Minister Olaf Scholz. credit: dpa | Kay Nietfeld

In budget adjustments signed off by Chancellor Angela Merkel’s cabinet, Europe’s largest economy will borrow a total €240.2 billion in 2021, a third more than initially planned.

The adjusted budget, which will see Berlin break its taboo on new debt for the third year in a row, still has to be approved by parliament.

“We have decided to suspend the debt brake once again, and I think that’s justified,” Merkel told the Bundestag lower house, adding that the budget was “measured” despite “more insecurity” than usual.

“We are taking the right measures to manage the economic and financial effects of the pandemic,” added Finance Minister Olaf Scholz.

After maintaining a budget surplus for the last decade, the economic slump caused by the pandemic has forced Berlin to take on €370 billion in new debt in 2020 and 2021, with an extra €85.1 billion planned for 2022.

With the country facing a dangerous third wave and shutdown measures extended into April, Germany’s recovery has proved slower than expected this year.

Having originally planned to halt borrowing in 2022, the government is now aiming to return to its golden rule of fiscal discipline a year later, with only €8.3 billion of new debt in 2023.

The so-called “debt brake” is a rule enshrined in the constitution which forbids the government from borrowing more than 0.35 percent of gross domestic product (GDP) in a year.

READ ALSO: Merkel admits Easter coronavirus shutdown plan her ‘mistake alone’

Germany smashed the taboo in 2020 and 2021 as it scrambled to shield businesses and workers from the economic hit of the coronavirus.

The state has already paid out more than 114 billion euros of financial support to businesses since the beginning of the pandemic in the form of guaranteed loans, direct aid and shorter-hours work schemes.

Yet according to a report published by the German Economic Institute on Wednesday, the crisis has still cost the German economy 250 billion euros so far.

Extended restrictions

Hopes of a recovery this year have been dashed with entire sectors of the economy idled for months and the government revising down its 2021 growth forecast to three percent in January.

As a third wave of the pandemic tears through Europe, Germany extended shutdown measures by another several weeks at a marathon meeting between Merkel and state premiers on Monday.

Though plans for a strict five-day lockdown over Easter were scrapped Wednesday, businesses such as non-essential shops, leisure facilities and cultural venues will still remain largely closed until at least April 18.

In a report published Monday, the Bundesbank central bank predicted that restrictions would see economic output “contract markedly” in the first quarter of 2021.

The measures have also been met with growing frustration from business organisations, with the German Commerce Association warning that 120,000 shops could be forced to close if the measures continue to drag on.

The issue of taking on new debt, meanwhile, has also sparked heated political debate ahead of a September general election.

In January, Merkel’s chief of staff Helge Braun caused a major ruckus within his own CDU party when he suggested that the rule on fiscal discipline should be lifted for several years to come.

SEE ALSO: ‘We have finances well under control’: Germany takes on less debt than expected in 2020

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