Rajoy calls for European action to stabilize debt markets

Prime Minister Mariano Rajoy insisted on Wednesday that Europe’s priority should be to stabilize the debt markets and guarantee liquidity in order to tackle the unsustainable borrowing costs facing countries such as Spain.

“What we can’t do is live with debt differentials with other countries when it comes to funding ourselves,” the prime minister told a joint news conference with French President François Hollande in Paris. “It makes it very difficult to control the deficit and allow structural reforms to take effect.”

Rajoy of late has dropped a number of loud hints that the European Central Bank should renew its purchases of Spanish government debt in the secondary market.

Rajoy was speaking as turmoil reigned once again in the financial markets on concerns about the future of the euro. The spread between the yield on the benchmark 10-year government bond and the German equivalent widened 21 basis points to 482 points

The European stock markets were also badly hit. The Spanish blue-chip Ibex 35 index gave up 3.31 percent to 6,440.50 points, levels last seen nine years ago.

“It’s a case of dispelling whatever doubts exist regarding the euro, and for an effort to be made to sustain the debt of all the countries that are complying with their commitments to the European Union, and that there is funding and liquidity,” Rajoy said.

The Spanish leader was speaking ahead of an informal summit of the European Union to prepare for the European Council meeting in June.

Rajoy also insisted that Spain’s banks do not need to be bailed out by the European rescue funds. “It’s probable that a small amount [of state funding] will be needed to recapitalize some of the Spanish banks, but as of now, the government has no interest in, nor any intention of, accessing any European bailout fund or that of any other organization,” he said.

Speaking later in Congress, Economy Minister Luis de Guindos said the situation at Bankia and its parent Banco Financiero y de Ahorros, which were nationalized earlier this month, could not be extrapolated “to the rest of the financial system.”

The IMF and the European Central Bank will help supervise an audit of the Spanish banking system.