Picking up on Prime Minister Mariano Rajoy’s call on Monday for the European Central bank to be granted powers along the lines of the US Federal Reserve, the Bank of England and the Bank of Japan to directly flood the economy with liquidity, Economy Minister Luis de Guindos on Tuesday urged the ECB to address the fragmentation of the capital markets in Europe.
“It can’t be the case that Spanish and Italian companies of the same quality as others in Europe pay higher interest rates for funding; something has to be done because this is a matter for concern,” De Guindos said at a seminar.
The ECB’s so-called Outright Market Transactions (OMT) program under which it can buy sovereign debt in the secondary market is aimed at addressing such anomalies in the European capital markets. However, in order to trigger such action, euro-zone member countries must first seek assistance from the European Stability Mechanism (ESM) and accept the conditions attached to such aid.
De Guindos said based on the information available, the performance of the economy was less negative in the first quarter of this year than the last quarter of 2012 and predicted a gradual improvement through the rest of 2013.
The minister said the economy is estimated to have contracted by 0.5 or 0.6 percent on a quarterly basis in the first three months of the year, compared with a decline of 0.8 percent in the fourth quarter of 2012. He said the second quarter would be somewhat better than the first, with zero growth in the third and “slightly” positive growth in the last quarter of the year.
The government’s official forecast for GDP for this year remains a contraction of 0.5 percent. However, the administration is expected to revise that figure later this month to show an expected decline of around 1.0 percent.
De Guindos said he expects the economy to grow at a level next year that generates a notable number of jobs because of the impact of the labor reform introduced last year that makes it cheaper and easier to sack workers. Spain’s jobless rate currently stands at 26 percent and is expected to approach 27 percent by the end of this year.
Francisco González, the chairman of BBVA, Spain’s second-largest bank, on Tuesday praised the labor reform as “exemplary” and argued that Spain “is the country in Europe with the best conditions in which to grow and create wealth.”
De Guindos said the government does not expect the Constitutional Court in Spain to follow its counterpart in Portugal by declaring elements of the administration’s austerity program illegal. “The reforms in Spain have all been carried out in accordance with the law,” De Guindos said.