Prime Minister Mariano Rajoy said Wednesday he will urge his European Union colleagues at this week's summit to adopt measures to stabilize financial markets, indicating that interests rates on Spain's government bonds are not affordable for much longer.
With the risk premium on Spanish debt at its current level, "it's very difficult for the economy to grow," Rajoy said in Parliament in response to a question about the government's position ahead of a two-day EU summit that begins Thursday.
Spain's risk premium - the extra return investors demand on its benchmark 10-year bond compared with equivalent, safe-haven German debt - widened to 522 basis points after a debt auction Tuesday, and has soared to a euro-era record of more than 550 basis points in recent weeks amid downgrades of Spain's sovereign debt by ratings agencies.
Rajoy told the lawmakers that he will call on Spain's European partners to use available EU instruments to calm the market turmoil.
The conservative prime minister did not specify if he will ask the European Central Bank to intervene and help bring down interest rates on Spanish sovereign debt, which have risen sharply in recent bond sales.
"The most urgent issue is financing. We can't keep funding ourselves for a long time at the prices we're currently funding ourselves; there are many institutions and also financial entities without market access," Rajoy said.
The prime minister said the summit in Brussels is important and expressed confidence that "significant progress" will be made toward a euro-area banking and fiscal union to restore confidence and manage European debt.
The EU needs to send a clear message that the euro is irreversible and "will be there forever," he said.
"It's very difficult to finance oneself and it will be worse if we don't send a clear message that we're taking this matter seriously," the premier said.
Spain's central bank said Wednesday the country's economy - already in recession for the second time in three years - has continued to weaken in the second quarter, contracting at a faster-than-expected clip due to a decline in demand.
The first economic bulletin published during the tenure of new Banco de España Gov. Luis Maria Linde recalled that Spain's gross domestic product fell 0.4 percent in the first quarter.
It added that indicators of consumer and business confidence also continued to decline in May and that employment destruction in Spain remains on the path of "intensification" begun in the second half of 2011.
Separately, the central bank said Wednesday the cumulative net income of Spanish non-financial companies plunged 64.2 percent in the first quarter compared with the same period of 2011.
On Monday, Spain formally asked its 16 euro-zone partners for financial assistance to backstop troubled banks, although it did not say how much it needs of the 100 billion euros ($126 billion) on offer.
The country's economy has been battered in recent years by the global recession and the collapse of a massive real-estate bubble, which has left banks saddled with toxic property assets.
The overall unemployment rate stands at almost 25 percent and nearly half of Spaniards under 25 are jobless, while tens of thousands of families have been evicted from their homes after falling behind on their mortgages.
The government says it will take new steps soon to bolster growth, but it must balance that aim with its commitments to bringing its budget deficit down to within EU-mandated limits. EFE