Spain says crisis begs more fiscal integration

Friday, 3 December 2010 00:54 - - {{hitsCtrl.values.hits}}

(Reuters) - Spain insisted on Thursday it will not need to tap a rescue fund but Prime Minister Jose Luis Rodriguez Zapatero said the time has come for the euro zone to move towards a more integrated fiscal and economic policy.

Spain is quickly moving into the eye of the storm in Europe’s debt crisis and its cost of borrowing at a three-year bond tender on Thursday was around 50 percent higher compared to the beginning of October.

But the jump was not as bad as feared and demand was solid, reflecting expectations the European Central Bank will extend its bond buying programme and the belief of some investors that Spain is not as much at risk as recent market action suggests.

“Spain isn’t going to have to tap any EU fund or resort to them,” Spanish Prime Minister Jose Luis Rodriguez Zapatero said, according to a transcript of an interview with CNBC.

“It’s a country which is going through a crisis because of the financial system crisis and the real estate bubble bursting, but we are undergoing reform.”

With billions in aid for Greece and Ireland having failed to stem the debt crisis, EU policymakers have begun to think of radical solutions, with ideas so far mentioned on the sidelines of meetings, discussed informally or only sketched out.

The argument for a more unified approach on budgets is that the lack of a full fiscal union among the 16 euro members creates tensions and risk differentials that are now being exploited.

“What Spain advocates is that if we have a single currency, it’s not enough just to have a central bank, a single central bank. It’s not enough to have a single monetary policy. We also need to have a common economic policy,” Zapatero said.

“We need to have a much more integrated fiscal policy, which is common policy, in order for our competitive positions to converge much more to become a pillar underpinning our single currency.”