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13 June 2012

Bloomberg: Rajoy declares war on central bankers to counter crunch


Rajoy said he has written to European Commission President José Manuel Barroso and European Union President Herman Van Rompuy calling for measures to counter a shortage of credit that is "strangling" economic growth.

The Spanish premier went on the offensive after a €100 billion rescue for the nation’s banks failed to quell bond market unrest that may be pushing the government towards its own bailout. Bundesbank board member Andreas Dombret this week said the ECB won’t buy more government bonds. “We have done our part”, Dombret said. “Now it’s up to the political leaders to deliver on the fiscal and structural policy side.”

Spiralling borrowing costs and deepening recessions across southern Europe are opening divisions among EU leaders who face a series of hurdles in the coming days, as bond investors question their ability to hold the euro area together. Italy is due to sell as much as €9.5 billion of bills and bonds at auctions today and tomorrow, while auditors are due to report on the extent of Spanish banking losses from next week.

The European Commission forecasts that Spain will post deficits of 6.4 per cent of gross domestic product this year and 6.3 per cent in 2013, even after unveiling €45 billion of spending cuts and tax increases. Rajoy’s aim is a deficit of 5.3 per cent of GDP this year.

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© Bloomberg


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