Spain Has Lot to Do on Budget

Spain and Italy are especially vulnerable to attacks from market speculators and should accelerate reforms of their economies as much as possible, Gonzalez-Paramo said in an interview with Spain's Cadena Ser radio.

There is no time for holidays. It's extremely urgent to act decisively and to show an inflexible compromise with the need to reform economies to make them grow," the ECB board member said.

Gonzalez-Paramo's words echoed those of European leaders in separate declarations Friday evenings after a round of telephone calls between euro-zone heads of state. 

Spain has practically completed the reform of its banking system but still needs to make progress on budgetary reforms, where elements of vulnerability remain, the ECB board member said.

"We have been told that on August 19 we will hear more of the measures which will assure that Spain will meet its budgetary targets," said Paramo, referring to Spain's commitment to reduce its budget deficit.

Spain still has a lot to do on the budget front,” said Gonzalez-Paramo in an interview with Spanish radio Cadena Ser broadcast yesterday. “Urgent measures also need to be taken to reform the labor market.”

With stock markets sinking for an eighth day, European leaders were hunting for solutions to shield Italy and Spain from market turbulence. The ECB resumed its bond-buying program, without extending the purchases to those two countries.

Umberto Bossi, leader of Italy’s co-ruling Northern League party, said the ECB will start buying Italian bonds on Aug. 8, as part of an exchange for the new economic measures unveiled by Italy’s government yesterday, Ansa newswire reported.

Meanwhile, Spanish Prime Minister Jose Luis Rodriguez Zapatero resumed his vacation in the southern part of the country, his office said in a text message yesterday evening.

Less than a day after first heading out on vacation, Zapatero returned to his office on Aug. 3 to remain in close contact with European leaders as the country’s borrowing costs approached the 7 percent mark that heralded bailouts of Greece, Portugal and Ireland.

Also yesterday, Zapatero spoke to French President Nicolas Sarkozy and agreed to implement accords adopted at the European Union July 21 summit as soon as possible, according to a statement posted on the Spanish government website.

Zapatero spoke by telephone with Italian Prime Minister Silvio Berlusconi and both agreed that the strong fluctuations of recent days in sovereign debt markets make little sense.

“Markets want to see promises kept,” said Gonzalez-Paramo, referring to the July 21 European Union summit which empowered the rescue fund to buy bonds in the secondary market, offer precautionary credit lines and lend to recapitalize banks. Paramo said there are tensions in the market because the European rescue fund can only act in theory until the changes are implemented by European governments.

European finance ministers are likely to meet in early September to speed up the implementation process of the July 21 accords, Spanish Finance Minister Elena Salgado said yesterday to Spanish radio station RNE.

Spanish bonds rallied on speculation that policy makers may take more action to arrest the crisis. The yield on Spain’s 10- year bonds tumbled 25 basis points to 6.04 percent at 4:18 p.m. in London yesterday.