Minister downplays spike in Spain's risk premium

The Spanish economy's fundamentals remain intact, and too much attention should not be given to the recent rise in the country's risk premium, Economy Minister Elena Salgado said Tuesday.

The spread between the yield on the Spanish benchmark 10-year government bond and the German equivalent rose by 50 basis points over a week and hit 230 basis points on Monday before steadying yesterday. The stock market also recovered after heavy losses on Monday, with the blue-chip Ibex 35 closing up 0.31 percent.

The detonators behind this are fears Greece might fail to meet the terms of its rescue package and the "euro-skeptic" outcome of the Finnish elections over the weekend, in which a party opposed to bailouts put in a surprisingly strong performance.

"The markets, I insist, are worried about these developments," Salgado said in an interview with Spanish radio station Cadena Ser. "But what is important is that they value the fundamentals of our economy. We should not pay too much attention to a particular spike [in bond yields], which has taken place in a week when the volumes traded are lower than normal," she added.

She pointed to the fact that Spain's public debt as a percentage of GDP remained at 24 percentage points below the average in Europe, while its debt-servicing costs were also among the lowest.

The minister said the reforms introduced by the government had been well received by the markets, and pointed out that the IMF had singled out Spain as an example of how to restore confidence.

Salgado said the government would continue with its reform drive, which has already seen the state pension system overhauled and the introduction of measures aimed at making the labor market more flexible in order to reduce high unemployment.

Austerity measures also succeeded in reducing the public deficit to 9.2 percent of GDP last year, and the administration is aiming to trim this to 6 percent this year.

Telefónica cuts

Separately, Salgado said telecoms giant Telefónica's plan to cut a fifth of its workforce in Spain - around 6,000 people - should not be at the cost of the taxpayer. The government is planning legislation that will require profitable companies such as Telefónica to foot the bill for state unemployment benefits in cases of layoffs.

"Companies have the right to reorganize themselves [...] but it doesn't seem very reasonable that taxpayers should have to contribute money to that reorganization," the minister said.