German Finmin-Spain not to seek bailout fund help-paper

Sat Jul 28, 2012 8:07pm IST

* Schaeuble dismisses talk Spain wants fund to buy its bonds

* Says Spain needs time but markets will reward its reforms

BERLIN, July 28 (Reuters) - Germany's Finance Minister dismissed reports Spain is about to ask the euro zone bailout fund to purchase its bonds, and talked down fears about its spiralling borrowing costs in an interview with Welt am Sonntag newspaper made available on Saturday.

"Spain's financing needs in the short-term are not so high. High interest rates are painful and they create a lot of uncertainty, but it is not the end of the world, if you have to pay a few percent more at a few bond auctions," Wolfgang Schaeuble said.

Asked if there was any truth to speculation that Spain would shortly ask the euro zone rescue fund for help via buying its bonds, Schaeuble answered: "No. There is nothing to these speculations."

Spanish borrowing costs this week hit euro-era highs as the return investors demanded to hold 10-year bonds soared to 7.78 percent. Yields then fell back below 7 percent on expectation the European Central Bank (ECB) could take bold action, following ECB President Mario Draghi's pledge he would do whatever it takes to safeguard the single currency.

Ten-year yields above 7 percent have proved to be a tipping point leading eventually to bailouts for other countries in the euro zone.

Asked about fears that Spain might not be able to sell its bonds Schaeuble said: "We know about these concerns. This is why we tied up an aid package that was sufficiently large. Spain will get up to 100 billion euros to recapitalise its banks and of this we have made 30 billion euros in the European Financial Stability Facility (EFSF) available as a potential immediate help."

Schaeuble held talks with Spain's Economy Minister Luis de Guindos in Berlin this week.

"[The Spanish government] has taken all necessary decisions and is implementing them. It deserves respect for this... Financial markets have not yet rewarded Spain for these reforms but that will come," Schaeuble said.

"You lose trust quickly, but can only restore it over time. Spain needs time. The reform programme will have good effects - also on financial markets," he added.

Madrid has launched a fresh 65 billion euro package of tax rises and spending cuts designed to chip away at its debt mountain but it will also probably drive the economy deeper into recession.

Spain needs to shift around 38 billion euros in medium and long-term paper by year-end and about 35 billion in bills. Their average yield so far this year is below 2011. (Reporting by Alexandra Hudson; editing by James Jukwey)

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