View from Spain: Borrowing costs soar amid fears

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Spanish authorities struggled to calm nervous markets yesterday as government borrowing costs soared amid fears that the Irish debt crisis could eventually spread to the Iberian peninsula.

"We don't run any risk of needing a bailout," the Spanish Finance Minister Elena Salgado said in an interview. "Our economy is very different from that of Greece or Ireland because our financial sector has benefited by the supervision and regulation of the Bank of Spain, which was missing in Ireland."

The Finance Minister pointed to the success of austerity measures, including a VAT increase, public sector pay cuts and labour market reforms. "Both the austerity and the reforms are producing the result we forecast," she said.

The Socialist Prime Minister Jose Luis Rodriguez Zapatero, meanwhile, has planned a summit on Saturday with the presidents of 30 leading Spanish businesses to help, "accelerate the economic recovery".

Spain's borrowing costs have soared following Ireland's decision to seek an EU bailout. The premium paid over German bonds has reached record highs of 236 basis points (2.36 per cent). Although the Spanish government soothed markets with austerity plans in May, many investors are still concerned about the solvency of some of Spain's 17 regions and are anxious to see pension and market reforms implemented.