* Spain's risk premium climbs above 435 basis points
* Newspaper El Pais pushes government to ask for a bailout
* Markets see muted impact from Italy in short term
By Jesús Aguado
MADRID, Dec 10 Spain will suffer contagion 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
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 a
high 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.
Over the past two years, Spain and Italy have traded barbs
about the financial or political situation of one was dragging
the other into the euro zone debt crisis. But leaders from the
two countries also teamed up to pressure Germany to support
crisis solutions such as building a banking union in Europe.
Of a potential request for European Central Bank
intervention in the debt market, 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.
Analysts saw limited impact in the short term for Spain from
Italy's political instability.
"The risk is very limited due to the bond-buying programme
(announced) by the ECB. We are not going to see interest rate
spikes such as those seen before the summer, but there will
obviously be some tensions leading perhaps to lower demand in
the next bond auctions," said Jose Luis Martinez, economist at
Spain's Treasury holds a 28-year bond auction on Thursday,
the first time it is has sold such a long-dated bond in at least
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 centre-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 which would allow the ECB to intervene in the
secondary bond market to lower Spanish borrowing costs.
The ECB's announcement of its bond-buying the scheme has
kept a lid on Spanish borrowing costs since September. But debt
yields remain uncomfortably high for a country facing another
year without economic growth.
Yields rose on Monday, with benchmark 10-year paper up 14
bps on the day at 5.63 percent as political upheaval in Italy
soured investor sentiment towards the euro zone's other
"Uncertainty is always badly perceived by the markets and
what Monti has done in the last months has been very important
and very well understood by the press. This new situation we are
seeing in Italy means reversing a trend (in confidence)," said
Victoria Torre, head of analysis at Self Bank.
El Pais said Madrid should act quickly to reach a decision
that Spanish voters, companies and financial markets think will
happen sooner or later. The paper said recent improvement in
Spain's borrowing costs was a "mirage."
"If the risk premium is not reduced urgently (...) investor
mistrust towards Spain will remain and the exit of the recession
will be uncertain and late, perhaps after 2014," the paper said.
However, de Guindos said he saw some signs of optimism in
the Spanish economy which would contract by between 1.3-1.4
percent in 2012 instead of a previously forecast 1.7 percent