Central bank governor says Spain must expect tax rises

SPAIN MUST be ready for further tax rises to rein in its budget, its central bank governor said yesterday, after its debt costs leapt on sliding confidence in the euro zone’s fourth biggest economy.

Two senior European figures joined a chorus of official voices ruling out a bailout for Spain, which would mark a critical new phase in the euro zone debt crisis, saying the country was delivering on economic reforms.

However the Spanish central bank governor Miguel Angel Fernandez Ordonez, weighing in on the centre-right government’s deficit reduction plan for the first time since it was unveiled last month, said problems raising taxes and outside factors like growth and inflation could put it at risk.

“The scale of adjustment required in our country is so great that we need to make use of all the instruments available, including taxes,” Mr Ordonez said, suggesting raising indirect taxes would be the preferable step.

Short-term borrowing costs almost doubled from a month earlier at a sale of more than €3 billion of short-term government debt yesterday a bad sign for an auction of two- and 10-year bonds tomorrow.

Good demand at yesterday’s sale, however, helped nudge 10- year yields back below the 6 per cent threshold they reached on Monday on concern over its banking system, deficit and recession – a point below levels considered unsustainable.

In another positive sign, the IMF saw Spain growing 0.1 per cent next year. Spain’s government has acknowledged it is in recession this year and is fighting to convince sceptical markets it can reduce one of Europe’s highest budget deficits. – (Reuters)