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Economy

Spain insists it is not next in line for bailout

Updated: 2011-04-07 17:06

(Agencies)

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MADRID- Spain's finance minister defended the nation's hurting economy on Tuesday, insisting that the country would not end up joining its neighbor Portugal in requesting a bailout.

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Finance Minister Elena Salgado told the Cadena Ser radio station that outside help for the eurozone's fourth largest economy "is absolutely ruled out" because the Spanish economy "is more diversified, more powerful with sound basics, and is much more competitive" than Portugal's.

Indications as to whether investors think the same will emerge later Thursday when the country auctions as much as euro4.5 billion ($6.4 billion) of bonds. So far though, Portugal's bailout request Wednesday appears to have little immediate effect on Spain's borrowing costs. In early trading, the yield on Spain's 1-year bonds was unchanged at 5.22 percent.

"The coming weeks and months will be key in determining whether the market views Spain to be in the clear," said Jane Foley, an analyst at Rabobank International. "The first test will be today's 3 year Spanish bond auction."

Few analysts think Spain is in line to become the fourth member of the eurozone's bailout club anytime soon following a raft of austerity measures, which have included tax increases, public sector wage cuts and the raising of the retirement age from 65 to 67.

Dan Seiver, a finance professor at San Diego State University, said there is now a much lower risk that speculators will target other nations in the eurozone, because the weakest nations in the zone have received bailouts and Portugal is headed in that direction.

Nevertheless, Spain faces extremely difficult times in the years ahead. Unemployment stands at 20 percent with grim growth prospects, and thousands of young Spaniards expected to demonstrate Thursday night against the austerity measures and grim job prospects.

Spain's central bank says the economy will grow this year by just 0.8 percent after two years of recession, though Salgado says the government of Prime Minister Jose Luis Rodriguez Zapatero believes it could be 1.3 percent.

The government on Wednesday lowered growth estimates for 2012 from 2.5 percent to 2.3 percent, and from 2.7 percent to 2.4 percent for 2013.

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