August 18, 2012 / 11:05 AM / 7 years ago

Spain says there must be no limit set on ECB bond buying

MADRID (Reuters) - The European Central Bank must take forceful and unlimited steps to buy sovereign debt to help Spain reduce its refinancing costs and eliminate doubts over the euro zone’s future, Spain’s economy minister said in comments published on Saturday.

“There can be no limit set or at least (the ECB) can’t say how much they will use or for how long,” when it buys bonds in the secondary markets, Luis de Guindos told Spanish news agency EFE.

The Spanish government will study the details of the ECB’s debt-buying program, which are likely to be outlined before the Eurogroup meeting mid-September, before making a decision on applying for more European aid, de Guindos said.

Spain is at the centre of the euro zone debt crisis on concerns it may need a full bailout, which could stretch euro funds to breaking point, on top of up to 100 billion euros ($122.97 billion) it has already requested for its struggling banks.

Prime Minister Mariano Rajoy has said his government would study any measures by the ECB and the potential conditions attached to any EU aid before deciding whether to apply for help.

In response to a renewed intensification of the debt crisis, ECB President Mario Draghi said on August 2 the ECB may buy more government bonds, but only once countries had turned to the bloc’s rescue funds for help and agreed to strict conditions.

“I believe Spain has presented its budget adjustment program and its structural reforms, which from a general point of view, have been accepted as sufficient and appropriate,” de Guindos said.

Rajoy has introduced austerity measures worth around 10 percent of GDP to reduce the public deficit to within EU-guidelines of below 3 percent of GDP by end-2014 as well as reforms to the financial system and labor markets.

The yield on Spain’s benchmark 10-year bond fell to its lowest level since early July on Friday after German Chancellor Angela Merkel voiced support for the ECB’s crisis-fighting strategy, reinforcing expectations of ECB interventions.

The central banks has barely used its existing bond-buy plan this year and has bought no bonds for 22 weeks despite an intensification of the euro zone debt crisis.


Spain’s public deficit leapt to 8.9 percent of gross domestic product in 2011 due, in part, to overspending by its 17 politically autonomous regions and spooking investors which have since virtually priced the regions out of debt markets.

Madrid passed an 18-billion-euro program mid-July to help the regions which, together with the country’s local authorities, account for around half of all public spending and face debt redemptions of some 36 billion euros this year.

The state lottery would raise 6 billion euros via a syndicated loan in the next few days to feed in to the liquidity program, de Guindos said in the interview.

The government of the Mediterranean region of Murcia became the second authority ask Madrid for help on Friday, saying it may need as much as 700 million euros in 2012.

Murcia follows Valencia, which said at the end of July it will need to apply to the fund. Spain’s largest region of Catalonia has also said it was studying whether apply for cash from the fund.

Murcia will soon ask for around 85 million euros to cover debt redemptions and 225 million euros to finance its first-half deficit, though could request another 400 million before the end of the year, they said on Friday.

The aid comes with strict conditions, set by Madrid, to meet deficit targets by reducing spending and raising taxes. ($1 = 0.8132 euros)

Reporting By Paul Day; editing by Ron Askew

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