Spanish intelligence probe 'debt attacks' blamed for sabotaging country's economy



Spain's intelligence services are investigating the role of investors and media in debt market turbulence over the last few weeks.

The National Intelligence Centre (CNI) is looking into 'speculative attacks' on Spain following the Greek debt crisis, according to El Pais newspaper.

'The (CNI's) Economic Intelligence division... is investigating whether investors' attacks and the aggressiveness of some Anglo-Saxon media are driven by market forces and challenges facing the Spanish economy, or whether there is something more behind this campaign,' the newspaper added.

The report comes days after Public Works Minister Jose Blanco protested 'somewhat murky manoeuvres' were behind financial market pressure on Spain.

A man walks past the stock index curve at Madrid's Stock Exchange. Spain strived to reassure investors that the recession-mired country was tackling its public spending deficit as it rejected any comparison to Greece's fiscal troubles

'None of what is happening in the world, including the editorials of foreign newspapers, is coincidental or innocent,' Blanco said.

Economists have cast doubt on forecasts that Spain's economy will grow by some 3 per cent by 2012, on which the government has based predictions it will cut back on its gaping budget deficit.

Some economists have said Spain's deficit could be more of a threat than Greece to the euro, the common currency of 16 European countries.

Spain's deficit has soared to 11.4 per cent of its gross domestic product amid its deepest recession in decades, but the government has pledged to cut the gap back to a eurozone limit of 3 per cent by 2013 by cutting 50 billion euros in spending.

Markets doubt that Spain will be able to cut back drastically on spending with unemployment running at 20 per cent and a big slice of the budget in the hands of fiercely independent regional governments.

Underscoring those doubts, the premium demanded by investors for buying Spanish rather than German government bonds has risen in recent weeks and the cost of insuring Spanish bonds against default by the government has also risen.

The euro has suffered against the U.S. dollar amid international concern of some European economies

Meanwhile, Euro zone finance ministers will exert more pressure on Greece to implement planned budget deficit cuts at a meeting on Monday, as they look to avoid having to deliver on a pledge of support for Athens.

They are not expected to ask Greece for additional fiscal measures until after a review of Athens' situation in March, although they may discuss what extra steps Greece could be asked to take if it does not show progress, sources said.

European leaders told Greece on Thursday it must cut its budget deficit by 4 percentage points this year, from 12.7 per cent of GDP, and bring it below the EU ceiling of 3 per cent by 2012, moves that Athens has said it will make.

That message will be reiterated by finance ministers from the 16 countries using the euro at a meeting on Monday.

'For 2010, Greece already has commitments in place. Greece must simply be precise about what it is going to do (to get there),' a senior EU source said last week.

'(Any) additional measures are for 2011 and 2012.'

EU leaders are hoping that pressure and a concerted effort by Greece will be enough to get on top of the country's deficit and debt problems and assuage markets.

Troubled: A passerby walks by a bank's promotional poster advertising the interest rates for its savings account in Athens

But they have said they are prepared to take 'determined and coordinated' action to safeguard financial stability in the euro area if needed.

That was designed to send a signal to the bond and currency markets - where Greek yields have come under intense pressure and the euro has weakened - that Greece will not be allowed to default on its debt and that the euro is not threatened.

But leaders did not specify what they would do to support Greece if it came to it, a lack of detail that has left markets with a reason to discount both Greece and the euro.

In a statement after the EU leaders' summit last week, European Central Bank President Jean-Claude Trichet noted Athens' commitment to do whatever was necessary, 'including adopting additional measures' to ensure its budget deficit cut target was implemented.

The premium investors demand to hold 10-year Greek government bonds rather than benchmark German Bunds rose to 302 basis points on Monday, from 275 bps late on Thursday, and the euro was trading down at 1.3610 to the dollar.

Promise: Greek Prime Minister Giorgos Papandreu

Concerned about how the market is exploiting Greece's weakness, and by extension that of the euro, euro zone finance ministers could also discuss measures to restrict short-selling of Greek debt via credit default swaps, one source said.

While euro zone finance ministers are agreed that the primary responsibility lies with Greece to get its fiscal and economic house in order, Athens' determination to act is being tested by unions, which don't want to see spending cuts.

With unemployment rising in Greece and social unrest always just below the surface, deep budget cuts and higher taxes could put the Socialist government on a collision course with the people.

'Greece must do what it must do. If they do that, there will be no need for specific measures,' one euro zone source involved in the preparations of Monday's meeting said.

'If they don't do that, there will be a show of determined and coordinated action, which is unspecified as yet,' he said, hinting at the financial support measures that could be taken.

Such measures will not be discussed on Monday because it was too early, several euro zone sources said. Greece was still able to borrow money on the market and detailing rescue steps now would send a signal that the situation was critical already.

'The ministers are very reluctant to define anything ex-ante. When there is a problem, they will sit down and hammer it out in 30 minutes,' a second euro zone source said.

Eurogroup Chairman Jean-Claude Juncker told the German Sueddeutsche Zeitung newspaper in an interview on Saturday there were instruments available for an intervention that could be used when necessary, but he would not name any at this stage.

On Monday and Tuesday, EU finance ministers will endorse the Greek deficit cutting plan which has already been approved by the European Commission, the EU executive arm.

They will also step up the 27-nation bloc's disciplinary budget procedure against Athens to the last stage before sanctions. If Athens does not take the action recommended by the ministers to cut the deficit, the EU could fine it.

'There will be more pressure on Greece to deliver rather than more work in preparing the euro zone for a scenario that Greece fails to deliver,' the first euro zone sourced said.