Spain says no guarantee recovery will continue

MADRID (AP) — The prime minister warned Thursday that Spain's incipient economic recovery is so weak there is no guarantee it will continue, a sobering assessment for a country suffering contagion from the Irish debt crisis.

Tensions in markets were apparent in a debt sale in which Spain's borrowing costs rose. The Spanish Treasury raised €3.65 billion (nearly $5 billion) in a 10- and 30-year bond auction but at higher interest rates, reflecting investor concerns over fallout from Ireland's debt mess and the likelihood it could need a bailout.

In a debate in Parliament on Spain's staggering jobless rate, Prime Minister Jose Luis Rodriguez Zapatero noted it improved a bit in the third quarter — edging down from nearly 21 percent to 19.8 percent — as the country struggles to crawl out of nearly two years of recession prompted largely by the bursting of a real estate bubble.

Third-quarter GDP growth was flat, after two quarters of timid growth, although the third quarter figure was up 0.2 percent on a year-on-year basis — the first such rise in seven quarters.

"We are still facing the crisis," Zapatero said, adding that the improved jobless figures should be taken with a note of caution. "The improvement is so slight that it does not guarantee an irreversible change in trend," Zapatero said.

Referring to the economy in general, he added: "The recovery is slow and sustained, but uncertain in its progression."

Zapatero said the Cabinet will approve Friday another set of reforms designed to kickstart the economy, and said his government is sticking by plans to reform the pension system and will present draft legislation in the first quarter of 2011 as part of a drive to cut Spain's budget deficit.

The government has said it wants to raise the retirement age from 65 to 67, but Zapatero did not specify this in his remarks Thursday. This planned change is one of the reasons unions staged a general strike in late September.

Opposition conservative leader Mariano Rajoy repeated a call for early elections, calling the premier's handling of the crisis a failure.

"A leader who fails has the moral obligation to refrain from continuing to imposing his errors. A democratic leader knows that when he errs as often as you have, and with such serious consequences, he must bow out, even if the law does not oblige him to," Rajoy told the legislature.

Zapatero's second term in office in March 2012 and polls show him trailing the Popular Party badly.

Spain's borrowing costs rose in Thursday's bond auctions, although both were amply oversubscribed. The Treasury had hoped to sell between €3 billion and €4 billion in these kinds of bonds.

The Bank of Spain said the Treasury sold €2.59 billion in 10-year bonds at an average interest rate of 4.6 percent, up from 4.1 percent at the last such auction, in September.

The Treasury sold €1.07 billion in 30-year bonds at an interest rate of 5.5 percent, compared to 4.8 percent at the last such auction, this time in October.