Spain called on Saturday for a new fiscal euro zone authority which would harmonize national budgets and manage the block’s debts. Prime Minister Mariano Rajoy said the authority was the answer to the European debt crisis and would go a long way in alleviating Spain’s woes as it would send a clear signal to investors that the single currency is an irreversible project. It is not the first time a European leader has proposed creating such an authority but the woes and the size of Spain – a country deemed too big to fail – may now accelerate talks ahead of a EU summit on June 28-29. The prospect of a Greek euro exit and Spain’s parlous finances have prompted EU policymakers to hurriedly consider measures such as a “banking union”. Germany, the paymaster of the euro zone, and others insist such a move can only happen as part of a drive to much closer fiscal union and relinquishing of national sovereignty. Overspending in the regions and troubles with a banking sector badly hit by a property crash four years ago have sent Spain’s borrowing costs to record highs and pushed the country closer to seeking an international bailout. The risk premium investors demand to hold Spanish 10-year debt rather than German bonds rose to its highest since the launch of the euro – 548 basis points – on Friday. The Spanish government, which has hiked taxes, slashed spending, cut social benefits and bailed out troubled banks, argues that there is little else it can do and the European Union should now act to ease the country’s liquidity concerns. In private, senior Spanish officials have said this could be done by using European money to recapitalize directly ailing banks or though a direct intervention of the European Central Bank on the bond market. They have also said the euro zone should quickly move towards a fiscal union to complete its 13-year monetary union but Rajoy went a step further by making a formal offer. “The European Union needs to reinforce its architecture,” Rajoy said at an event in Sitges, in the north-eastern province of Catalonia. “This entails moving towards more integration, transferring more sovereignty, especially in the fiscal field. “And this means a compromise to create a new European fiscal authority which would guide the fiscal policy in the euro zone, harmonize the fiscal policy of member states and enable a centralized control of (public) finances,” he added.
