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Teachers and students boycott the opening of the academic year at the University of Valencia to protest against educational cuts, September 21, 2012. (HEINO KALIS/REUTERS)
Teachers and students boycott the opening of the academic year at the University of Valencia to protest against educational cuts, September 21, 2012. (HEINO KALIS/REUTERS)

Germany’s Schaeuble says Spain doesn’t need bailout Add to ...

There was “no guarantee that they can keep on convincing people in the other countries” that it is in their own interests to keep Greece in the euro zone, he said.

EU officials and sources in Germany said a crucial report by Greece’s international lenders on whether its debt is manageable was likely to be delayed until after Nov. 6, to avoid an economic shock that could hurt U.S. President Barack Obama’s re-election.

That would leave Greece perilously short of cash but in Athens, a finance ministry official said Greece had been assured that the so-called troika report would not be delayed past the election.

After a week of mass demonstrations against planned tax increases imposed to meet targets set in Portugal’s bailout programme, Prime Minister Pedro Passos Coelho promised to “listen to the nation”, suggesting he could soften the measures.

“We are not deaf to the difficulties faced by the country,” Passos Coelho told parliament of nationwide protests against a planned rise in social security contributions.

Portugal has entered its worst recession since the 1970s as it labours under sweeping tax rises and spending cuts, with the centre-right government’s popularly falling to an all-time low after it announced the tax changes.

In Greece, the cuts ranged from 20 per cent to 40 per cent, while new pensioners had a 10 per cent pay cut in Ireland and Portugal scrapped the Christmas and summer extra payments.

While an announcement could be made next week when the government adopts the first draft of the 2013 budget, political analysts say Mr. Rajoy may be tempted to wait until after a regional election in his native north-western Galicia.

The timing of any request for European aid is in Mr. Rajoy’s hands. Some pointers suggest he could make the move along with the budget package to pre-empt a credit review by ratings agency Moody’s, due by end-September, which might otherwise downgrade Spanish debt to junk status. Moody’s has said it would welcome a Spanish aid request.

However in Brussels, EU officials close to the discussion said they did not expect Madrid to seek an assistance programme before the October 21 regional vote. That would mean Spain would have to get over a €27.5-billion refinancing hump at the end of October without the euro zone rescue fund or the ECB buying its bonds.

The spread between Spanish and German benchmark 10-year bonds, a measurement of the perceived risk of investing in Spain, widened a few basis points on Friday to 417.

As Reuters reported first last month, Spanish officials led by Economy Minister Luis de Guindos have been talking discreetly to the European Commission since at least early August about possible conditions and supervision for a precautionary programme that would keep Spain in capital markets.

Mr. De Guindos made clear at a meeting of euro zone finance ministers in Cyprus last weekend that Spain, keen to avoid having terms imposed from outside, would announce its own reform measures and timetable on September 28, a day after a draft 2013 budget is approved by the cabinet.

Mr. Rajoy performed especially well among pensioners when he was elected in a landslide last year and his first move after taking office was to restore the inflation adjustment his predecessor Jose Luis Rodriguez Zapatero had removed in May 2010 when Spain entered in the eye of the storm of the euro zone debt crisis.

Mr. Zapatero also passed last year a law to add two years to the retirement age by 2027. Mr. Rajoy’s People’s party, then in the opposition, voted against the change.

With unemployment soon to top 25 per cent and set to remain at high levels until at least 2015, the number of people contributing to the state pension system has fallen to its lowest level in 10 years. There are now 2.39 workers contributing fees to support one pensioner.

As unemployment is expected to grow and the population to age, this ratio is set to fall to 2 in the next months, a level the OECD in 2011 expected Spain to reach only in 2011.

A spokesman for Spain’s employment ministry said on Friday EU authorities were no longer pushing to speed up the raising of the retirement age, since they May recommendations were revised in July. A parliamentary committee would soon begin debating other ways to make the pension system sustainable, he said.

The government tapped €4.4-billion from an insurance fund to make July and August payments to the 8.1. million pensioners, about a fifth of the population.

It also said it could not rule out using the pension guarantee fund – meant only for emergencies – by the end of the year to pay the pensioners their monthly cheque.

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