The Spanish government on Thursday insisted there was no danger of the country following Portugal towards a bail-out after its troubled neighbour paved the way to becoming the latest eurozone member to request emergency aid from the European Union.
Elena Salgado, economy minister, said investors no longer viewed Spain as the next in line for a rescue package as financial markets now distinguished between the two Iberian countries.
Contagion from Portugal “is absolutely ruled out”, she told Spanish radio on Thursday in response to the Portuguese government’s acceptance that it would require EU aid. She said the markets had known for some time that “our economy is much more competitive”.
Ms Salgado’s comments come as the rate of interest that investors demand to lend to Spain has fallen, while the perceived creditworthiness of Portugal, Ireland and Greece has continued to deteriorate. This has prompted some analysts to say that Europe’s fourth-largest economy has now “decoupled” from other peripheral eurozone members.
“At the earlier stages of the crisis Spain was considered in much the same category as Ireland and Portugal,” said Gary Jenkins, head of fixed income at Evolution Securities. “Lately, and in particular over the last three months, Spain has decoupled quite convincingly from the smaller peripheral countries.”
The amount Spain pays to borrow for 10 years has fallen from a high of 5.45 per cent in early January to about 5 per cent this month, while Greek, Irish and Portuguese bond yields have risen to euro-era highs.
A bond auction on Thursday underlined the markets growing confidence that Spain is bringing down its debt levels. The country sold €4.1bn of three-year bonds, in the middle of a target range of €3.5bn to €4.5bn. The interest rate was below an auction of similar debt a month ago at 3.56 per cent.
The bursting of a decade-long construction and property bubble has led to a collapse in Spanish economic growth, and regional savings banks that helped fund the boom have been forced into emergency mergers after being saddled with billions of euros of bad debt.
Spain’s Socialist government, led by José Luis Rodríguez Zapatero, responded to mounting concern over the stability of the Spanish economy by introducing a series of measures to appease international markets, such as civil service pay cuts and other austerity measures that have successfully lowered the country’s budget deficit.
Mr Zapatero, who last week announced he would not seek a third term in next year’s Spanish elections, recently told newspaper El País that the chances of Spain suffering a sovereign debt crisis in the style of Greece, Ireland or Portugal was now “99.9 or 100 per cent ruled out”.
Portugal admitted that its borrowing costs had reached unsustainable levels after a package of austerity measures designed to ease its debt burden was voted down in the country’s parliament, triggering the resignation of José Sócrates, the prime minister.
Investors’ calmer view about Spain’s sovereign debt situation was similarly reflected in the markets for credit default swaps, financial derivatives that investors can use to purchase insurance against the default on debt issued by a country or company.
The premium paid to insure five-year Spanish debt fell by 8.8 per cent to 201 basis points a year. This compares with 553bp for Portugal and 997bp for Greece.
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