Spain can’t continue much longer with its current high borrowing rates, its prime minister warned Wednesday as he urged a joint European response to keep the region’s debt problems from getting worse.
Spanish Prime Minister Mariano Rajoy and newly elected French President Francois Hollande, due to meet other European Union leaders later in the day, also stressed their commitment to keeping Greece in the euro despite its political uncertainty.
“Europe has to come up with an answer,” Rajoy said in Paris alongside Hollande. “It is a must, because we cannot go on like this for a long time, with large differences when it comes to financing ourselves. And it is because of these differences that the policies that we Europeans believe in, such as controlling government spending and reforms to encourage growth, ultimately have no effect.”
Expectations were low, however, that the leaders gathering in Brussels will agree to any concrete measures to boost growth and stability in the 17-country euro zone. Europe’s main stock indexes plunged more than 2 per cent, with Spain’s Ibex down 3.3 per cent. The euro fell 0.5 per cent to $1.2588 (U.S.), its lowest since August 2010.
Spain’s borrowing rates are high – and rising – because of fears that its government finances might be overwhelmed by the costs of rescuing its ailing banking sector. High borrowing rates are at the heart of Europe’s crisis and have already caused Greece, Ireland and Portugal to need bailouts.
Mr. Rajoy suggested the European Central Bank resume some of its emergency measures, such as the purchase of government bonds of financially weak countries, which has the impact of lowering countries’ borrowing rates. The ECB has suspended the purchases because, as an independent body, it does not want to be seen supporting governments directly. Instead, it has given European banks massive amounts of cheap loans to bolster confidence in the financial system.
President Hollande said the ECB’s role would be discussed by European leaders, and said he will formally propose so-called eurobonds – debt issued jointly by euro zone countries – at Wednesday’s summit.