Spain borrowing costs don't match economy

The soaring costs Spain is paying to borrow on the markets do not correspond to its economic strength, the Spanish and German finance ministers said on Tuesday in a joint statement. "The current level of interest rates prevailing in the sovereign debt market does not correspond to the fundamentals of the Spanish economy, its growth potential and the sustainability of its public debt," the ministers said. Earlier Tuesday, borrowing costs on the secondary market for Spanish 10-year bonds had risen to above 7.6 percent, well higher than the seven percent considered unsustainable and that has pushed others to seek EU bailouts. The joint statement by Wolfgang Schaeuble and Luis de Guindos came after talks held in Berlin amid growing speculation -- hotly denied -- that Madrid is on the verge of seeking a full-blown sovereign bailout. The two ministers also stressed "the importance to work -- together with European partners -- on the quick implementation of the European Council decisions of June 29." This followed confusion and fury after Madrid said in a statement that France, Italy and Spain had agreed that emergency financial reforms agreed by the eurozone be immediately applied. France and Italy later angrily denied they had signed up to such a statement. The June accord paved the way for the eurozone's future 500-billion-euro ($600 billion) bailout fund to recapitalise ailing banks directly, without adding to the national debts of struggling countries. The statement also said that Spain had taken "important steps to put its economy back on track." Such reforms, especially in fiscal and labour market policy, are "vital for the Spanish economy to achieve a sustainable growth path and to regain competitiveness," the ministers added. Berlin has gone out of its way to praise the economic reforms carried out by Spain and urged them to continue along this path to restore competitiveness. The statement also said the ministers agreed that the EU deal to plough as much as 100 billion euros ($122 billion) into Spain's stricken banking system was crucial to restore confidence in the country. This will "contribute to breaking the vicious circle between the banking and sovereign debt crisis," the statement added. One of the main problems Spain has faced is that bailing out its ailing banking system has pushed up its own debt, reducing market confidence in its economy. The EU bailout aims to recapitalise the banks and allow Madrid to get on with tackling its other economic problems. De Guindos will hold talks with his French counterpart Pierre Moscovici on Wednesday for what a Spanish government source billed as "a routine meeting". Spain's economic difficulties sent stocks in Madrid and the euro tumbling on the market on Tuesday as traders fretted it could be the next domino to fall in the two-and-a-half year eurozone debt crisis.