Spain struggles to avoid link to debt-stricken Ireland

As debt-stricken Ireland heads for a Greek-style EU bailout, Spain is desperately trying to avoid being lumped in the same basket but analysts warn it will have to do more to keep investors happy.

There is “absolutely no reason” to compare Spain with Ireland, Finance Minister Elena Salgado said.

“We are able to borrow fresh funds at practically the same (cost) as Italy and do much better than Ireland, Portugal and most certainly than Greece.

“I think the markets believe in Spain... (which) has no need of any extra austerity measures,” she said.

In May, the EU and the International Monetary Fund bailed out Greece to the tune of €110 billion to prevent a likely debt default that could have torpedoed the entire eurozone project.

Last Friday, EU, IMF and European Central Bank officials began tough talks in Dublin whose public finances have been stretched to the limit by the billions of euros it has spent to keep its devastated banks afloat.

As the Irish debt crisis has deepened, the rates it has to pay to raise fresh cash on the financial markets have risen sharply, with a knock-on effect on Portugal and Spain.

Analysts say an Irish deal is key to easing the immediate crisis and giving other eurozone states some breathing room to put their finances in order before they too get sucked into the firing line.

As the Greek crisis unfolded earlier this year, these weaker eurozone states, including Spain, came under increasing pressure, with the Socialist government forced to adopt tough austerity measures.

Spending was cut, taxes hiked and the regional savings bank system – a weak point – restructured, with the markets rewarding Madrid with an easing in tensions as a result.

“I do not think that Spain is going to be the next Greece or Ireland,” JP Morgan strategist Robert Michele told the Expansion daily on Friday.

“We are buyers of Spanish debt (bonds). I have confidence in the Spanish government and its policy on financial restructuring,” he added.

Nonetheless, Spain has seen interest rates on its bonds rise in recent days as the markets have fretted over the threat of contagion from the Irish crisis, demanding higher returns to provide financing.

The markets “demand that we be consistent in the reforms that we have announced,” Ms Salgado noted.