Spain, the latest combat zone in Europe’s long-running debt wars, urged the euro zone to set up a new fiscal authority to manage the bloc’s finances and send a clear signal to markets that the single currency project is irreversible, Reuters reported.
Prime Minister Mariano Rajoy said the authority would also go a long way to alleviating Spain’s woes which, along with the prospect of a Greek euro exit, have threatened to derail the single currency project.
It is not the first time a European leader has proposed creating such an authority but the problems and the size of Spain – a country deemed too big to fail – have prompted EU policymakers to hurriedly consider measures such as creating a fiscal and banking union ahead of a EU summit on June 28-29.
Germany, the paymaster of the euro zone, and others insist such a move can only happen as part of a drive to much closer fiscal union and relinquishing of national sovereignty.
Overspending in the regions and troubles with a banking sector badly hit by a property crash four years ago have sent Spain’s borrowing costs to record highs and pushed the country closer to seeking an international bailout.
The risk premium investors demand to hold Spanish 10-year debt rather than German bonds rose to its highest since the launch of the euro – 548 basis points – on Friday.
The Spanish government, which has hiked taxes, slashed spending, cut social benefits and bailed out troubled banks, argues that there is little else it can do and the European Union should now act to ease the country’s liquidity concerns.
In private, senior Spanish officials have said this could be done by using European money to recapitalize directly ailing banks or through a direct intervention of the European Central Bank on the bond market.
They have also said the euro zone should quickly move towards a fiscal union to complete its 13-year monetary union but Rajoy went a step further by making a formal offer.