Spain will borrow over €200 billion
The Spanish government has set a target for next year of €207.2 billion in funding, the Finance Ministry announced on Monday in Madrid. Prime Minister Mariano Rajoy considers requesting international aid in the context of credit costs too high.
Thus, Spain could ask for the eurozone emergency fund to cover its financing needs for 2013, giving up borrowing from financial markets because of the high interest rates demanded by investors.
The Spanish state debt will reach 90.5% of gross domestic product (GDP) at the end of next year, according to official figures cited by Bloomberg. The government will absorb the cost of rescuing the banking sector and energy system, the financing of regional governments in difficulty and also the expenses associated with the financing of “bailout” of Greece, Ireland and Portugal.
This year’s budget deficit will be 7.4% of GDP, Finance Minister Cristobal Montoro said in a press conference. Budget deficit target of 6.3% of GDP will be met because the cost of bank recapitalization can be excluded from the index, he said.
European Central Bank (ECB) expects a formal request for international assistance from the government in Madrid before implementing the plan of bonds purchase on the secondary market to reduce interest rates. The ECB has determined that it will not act in the absence of a request for assistance from distressed states eligible for this program.
Prime Minister Mariano Rajoy tries to avoid imposing from “outside” economic and fiscal conditions specific for external financing that would amount to partially giving up economic sovereignty to the EU.
The government presented last week a plan of 43 measures to strengthen economic growth, of which European Commissioner for economic and monetary policy Olli Rehn said that it goes beyond EU recommendations for the restructuring of Spain.
Spain’s funding cost, as measured by return on government bonds maturing in 10 years, exceeded the threshold of 6% last week due to concerns about divergences between eurozone governments on the implementation of anti-crisis plans. Interest have slightly dropped Friday amid market speculation that Madrid had intended to seek external help during the weekend. Spain intends to cover 41% of borrowing next year by selling Treasury securities, 51% by issuing bonds.
Average maturity of Spain’s debt will fall next year to about 5 years and 10 months, from about 6 years and 4 months at the end of this year. Net debt will rise by €48 billion and the remaining €159.2 billion euros will be the refinancing of outstanding securities and bonds that will mature in 2013. Since the beginning of this year, Spain has borrowed €145.4 billion.
Spanish banking system needs additional capital of €59.3 billion to cover losses caused by the collapse of the housing market, according to data announced Sunday by Bank of Spain the Ministry of Economy. Approximately €40 billion of this amount will be covered by accessing the eurozone emergency fund.
Next year’s budget includes spending cuts and tax increases to a total of €13 billion in an attempt to meet the budget deficit target assumed for 2013, 4.5% of GDP.
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