Leaders of Spain, Italy meet as markets drop

Associated Press + More

By CIARAN GILES and HAROLD HECKLE, Associated Press

MADRID (AP) — Italy's Prime Minister Mario Monti said his country will not seek a sovereign bailout, though Spanish Premier Mariano Rajoy, whom he met with on Thursday, dodged the question altogether as financial markets dropped sharply.

Both leaders said at a joint press conference in Madrid that they welcomed European Central Bank president Mario Draghi's commitment that "the euro currency was irreversible."

Draghi said the bank would make a new effort to buy government bonds to drive down the high borrowing rates squeezing the continent's indebted governments.

However, markets were disappointed that, while Draghi had committed the ECB to action, the plan was short on detail.

In Spain the benchmark IBEX-35 stock index reacted by plummeting 5.2 percent while the 10-year bond yield rocketed up to 7.06 percent, an unsustainably high level over the longer term.

Monti said he did not consider Draghi's failure to produce a fully formed plan as "a step backwards." He said he and Rajoy had signed a joint statement committing to "setting in motion a road map for greater fiscal and financial integration to complete a true economic and monetary union."

While Monti said Italy's finances were solid, Rajoy replied that he would continue trying to reduce Spain's public deficit by sticking to planned structural reforms.

Earlier in the day, Spain had sold €3.1 billion ($3.8 billion) in medium-and long-term bonds but at a sharply higher cost, another sign the country is struggling to convince skeptical investors that it won't need a bailout.

The Treasury sold €1.04 billion in 10-year bonds at an average interest rate of 6.65 percent, up from 6.4 percent in the last such auction July 5. Spain's 10-year bonds have been fetching similar yields on the secondary market for several months now.

The Treasury also auctioned €1.02 billion in four-year bonds at a rate of 5.97 percent, up from 5.54 percent, and €1.06 billion in two-year bonds at a yield of 4.77 percent.

One good sign was that demand was more than double the amount offered in the four- and 10-year bond sales and nearly three times the amount in the two-year sale.

Improving confidence in Spain has been difficult as the economy remains in bad shape. It is in its second recession in three years with an unemployment rate of nearly 25 percent.

Some good news came from the Labor Ministry, which said Thursday that the number of people registered as unemployed fell by 27,814 in July. That was its fourth straight monthly decline as more people found work in summer tourism. The total number of people registered as jobless is now 4.58 million.

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