August 17, 2012 / 1:51 PM / 7 years ago

Madrid Mayor says Spain rescue "seems inevitable"

MADRID (Reuters) - The mayor of Madrid, a prominent member of Spain’s ruling party, said on Friday it “seems inevitable” the central government would apply for some kind of international aid package as the country goes through a deep recession and borrowing costs soar.

Ana Botella, wife of former Prime Minister Jose Maria Aznar, is the first high-level Spanish official to say publicly that the country would need a financial rescue.

“There’s no doubt about it. It’s very probable that we’re going to have to ask for help from the European Union,” Botella told Spanish news agency Europa Press in an interview.

“It seems inevitable,” the agency quoted her as saying.

Spain’s recession-hit economy, shattered banking system and sky-high unemployment are at the center of concerns over the future of the euro zone as investors worry a bailout of the bloc’s fourth largest economy would stretch its rescue funds to breaking point.

Prime Minister Mariano Rajoy has said he would not take a decision on whether to apply for a new aid package, on top of a 100-billion-euro ($123.63-billion) loan for the country’s banks, until he knew what conditions would be attached.

Possible options would be for Spain to apply for a precautionary credit line or to petition the European rescue fund to buy Spanish sovereign bonds to force down yields.

European Central Bank President Mario Draghi earlier this month laid out plans

The yield on Spain’s benchmark 10-year government bond, dropped on Friday to 6.49 percent, its lowest level since early July, as banks took the bonds for use as collateral to raise funds.

Rajoy has slashed public spending and hiked taxes in an effort to deflate one of the euro zone’s largest public deficits and convince nervous markets, which have pushed borrowing costs to 14-year highs, he can control the country’s finances.

Botella was made mayor after the conservatives came to power in December and her predecessor was named to Rajoy’s cabinet. She said she blamed the previous Socialist government for leaving the country with a massive public account shortfall and leaving Rajoy no choice but to seek international aid. ($1 = 0.8089 euros)

Reporting By Paul Day; Editing by Fiona Ortiz and Patrick Graham

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