Europeans Striving to Calm Nerves in Markets
Francisco Seco/Associated Press
Prime Minister José Sócrates in Parliament after his government approved
the 2011 budget.
Officials across Europe scrambled on Friday to speed measures aimed at
easing the fears of investors even as borrowing costs flirted with new highs
in the euro zone’s frailer countries.
In Portugal, lawmakers approved a tough 2011 budget to help the country meet
a pledge to cut the deficit to 4.6 percent of gross domestic product next
year, from 9.3 percent in 2009.
In Spain, the central bank demanded greater disclosure from banks. And it
announced plans for new stress tests to show investors that financial
institutions, particularly the weaker savings banks, could absorb a “
problematic exposure” of 180 billion euros ($238 billion) to the country’s
collapsed construction and real estate sectors.
Meanwhile, a team of European Union and International Monetary Fund
specialists in Ireland was racing to complete terms of its financing package
before markets reopened on Monday.
The accelerated timetable is intended to lift some of the uncertainty that
is unsettling investors, according to a person with knowledge of the matter,
who did not want to be identified.
The efforts came at the end of a week in which borrowing costs in all three
countries soared, underlining the extent to which Ireland’s financial
crisis has wounded investor confidence, notably by undermining the
credibility of stress tests carried out in July on Irish and other European
banks.
“We could end up with a problem, because in the markets expectations can
become self-fulfilling prophecies,” José Luis Malo de Molina, chief
economist at the Bank of Spain, said at a banking conference Thursday
evening. He also urged the government to stick to its spending cuts because
“the evolution of public finances will be the crucial touchstone to
maintain confidence.”
Like other Spanish officials, Mr. Malo de Molina insisted that Spain’s
problems could not be compared to Ireland’s. “The Bank of Spain is
convinced that additional transparency efforts will help reduce the doubts
and unfounded suspicions that spread in moments of market nervousness,” he
said.
The Spanish prime minister, José Luis Rodríguez Zapatero, went a step
further, telling a radio station that Spain would “absolutely” not seek
outside help and predicting that “those who are taking short positions
against Spain are going to be mistaken.”
Spain’s leading executives are scheduled to meet with Mr. Zapatero on
Saturday to discuss the crisis.
Amid reports Friday that the European Central Bank was again buying
Portuguese and Irish bonds, the price of Portugal’s 10-year bonds rebounded
slightly, pushing yields down nine-hundredths of a percentage point, to 6.
69 percent. That was almost two and a half times the yield on German bonds,
the euro zone benchmark.
The yield on 10-year Irish bonds climbed 0.11 percentage point, to 8.88
percent, and the cost of protecting debt sold by Irish banks set new highs
after The Irish Times reported that the European Union-I.M.F. mission to
Dublin was examining ways in which senior bondholders could be compelled to
pay some of the cost of rescuing Ireland’s banks, which were downgraded
Friday by the Standard & Poor’s ratings firm.
The spread, or differential, between the yields on Spanish 10-year
government bonds and German bonds set a euro-era record Friday, widening to
2.64 percentage points. It fell back to 2.43 percentage points on an
announcement that Spain would sell less debt than initially planned before
the end of the year as its financing needs were already covered.
The euro, which traded above $1.40 as recently as Nov. 5, had fallen Friday
to $1.3237, down 3.2 percent for the week.
Meanwhile, European officials joined their Portuguese counterparts in
rejecting reports that Portugal was being pressed by European partners to
accept a bailout to help calm markets.
“This is not the position of the ministry,” said Bertrand Benoit,
spokesman for the German finance ministry.
José Manuel Barroso, president of the European Commission and a former
prime minister of Portugal, told reporters at a conference in Paris that “
any reference to an aid plan” for Portugal was “absolutely false.” He
added, “It’s being neither demanded nor has it been suggested by us.”
After the vote Friday in Portugal, the prime minister, José Sócrates, said
the country had “no alternative at all” to the belt-tightening policy. “
We must make this effort,” Mr. Sócrates was quoted as saying by The
Associated Press.
Under pressure from investors, Mr. Sócrates presented an additional package
of austerity measures in September that was initially rejected by the
Social Democrat opposition because it contained tax increases. Mr. Sócrates
is in his second term in office but without a parliamentary majority.
Portugal’s two biggest parties eventually brokered a deal to avert a
government collapse, which cleared the way for the vote Friday, in which
Social Democrat lawmakers abstained. But that has failed to dispel concerns
about the government’s ability to control spending. Rather than falling,
Portugal’s deficit widened 2.3 percent, to 9.32 billion euros, in the first
nine months of this year.
Portuguese unions on Wednesday coordinated the country’s first general
strike in more than two decades to protest the austerity program.
The concerns have spilled over into Spain, pushing up its borrowing costs
even though the latest data suggests Madrid will meet its target of cutting
its deficit this year to 9.3 percent of G.D.P., from 11.1 percent in 2009.
An austerity package adopted last May has helped cut Spain’s central
government deficit 47 percent in the first 10 months of this year. To ensure
similar belt-tightening and more transparency by Spain’s regional and
local authorities, Spain’s finance minister, Elena Salgado, announced on
Wednesday that Spain’s 17 regional governments would be required to update
their budget figures quarterly.
But political tensions are mounting in Spain. Mr. Zapatero, who is also in
his second term but without a parliamentary majority, this week urged the
center-right opposition Popular Party to show patriotism and avoid
heightening the concerns of investors. Instead, the Popular Party warned the
government not to publish any misleading data, and its secretary general,
Dolores de Cospedal, insisted that “the problem of Spain is lack of trust
in the government.”
“Things would be easier for Spain if the two big parties could demonstrate
real consensus on how to get out of this difficult situation,” said Alvaro
Blasco, executive director of Atlas Capital, a Madrid-based financial
advisory firm.
