Spain steps up pressure on ECB to calm crisis

(MADRID) - Spain stepped up pressure on Wednesday on the European Central Bank to act urgently to calm a market storm, which has intensified despite a huge rescue loan for its banks.

Prime Minister Mariano Rajoy's government released a letter he wrote to European Union chiefs on June 6 pleading for rapid ECB action to bring down soaring sovereign borrowing rates.

Investors have propelled the rate on Spain's benchmark 10-year bonds to levels considered unsustainable for the state to finance its operations over the longer term.

On Wednesday, they were trading at 6.690 percent, not far from the previous day's euro-era record.

"We need to act with urgency to stabilise financial markets and lower risk premiums," Rajoy wrote to European Union president Herman van Rompuy and European Commission chief Jose Manuel Barroso.

The Spanish leader cited deep-seated doubts about the euro, the speed of financial markets and the flight of liquidity from fragile eurozone members to the strongest economies such as Germany.

"Businesses and households need access to liquidity. That is impossible if doubts persist over the sustainability of the debt of sovereign states," Rajoy warned.

Europe needed the necessary instruments to calm market fears, the prime minister added.

"Today, the only institution we have with the capacity to assure the required conditions of stability and liquidity is the European Central Bank," the Spanish leader said.

"Assuring financial stability is, at this time, essential to show the commitment of member states to the irreversible nature of the euro," he cautioned.

Rajoy told parliament he would deliver the letter in a Rome summit of the major European economies June 22.

The ECB last week resisted pressure for a further cut to borrowing costs -- already at a record low.

The bank has provided the region's banks with more than 1.0 trillion euros ($1.25 trillion) in low-cost loans since December and much of that money has been spent buying government bonds.

Spain's prime minister defended a weekend deal his government struck with its eurozone partners for a rescue loan of up 100 billion euros to salvage stricken banks.

"I am very satisfied because Spain at this time does not have the 100 billion euros nor, as you know, can it issue public debt," he said.

Spain was acting three years late because the previous Socialist government had failed to recapitalise the banks in 2009 when the rest of Europe was doing so, he told opposition leader Alfredo Perez Rubalcaba.

"They told us we had the best financial system in the world and now it has been shown that we don't," Rajoy said.

"That's why we went to the European Union, the European Union is going to lend us 100 billion euros and those 100 billion euros will be used for the banks," he said.

Banks would have to repay the money, the premier stressed.

"It is a credit for the banking system that the banking system itself will have to pay, and we should celebrate the fact that our European partners have helped us."

The premier was mocked for his refusal to describe the bailout loan as a rescue.

Rosa Diez, spokeswoman and founder of the Union, Progress and Democracy, urged Rajoy to pronounce the word.

"Nothing will happen to you for admitting the truth, for doing it in parliament, and for calling the rescue a rescue. Say it with me -- rescue. Limited rescue, financial rescue, light rescue, marvelous rescue, but rescue," Diez said.

Facing parliamentary questions over the loan, Economy Minister Luis de Guindos denied it imposed new conditions beyond the financial sector.

Loan conditions would be specific to the banking sector with no requirement for a broader austerity programme, he told parliament.

"I insist there are no supplementary conditions on budget policy, nor structural reforms," he said.

There would be no new recommendations beyond those made by the European Commission on May 30 as part of its monitoring of Spain for exceeding agreed public deficit limits, the minister said.

European Union economic and finance chiefs would decide on those recommendations "soon", he said.