Spanish Finance Minister Luis de Guindos has admitted that the first six months of the year will be hard, but is convinced that bond markets will recognise his country's effort and yields will drop sharply on Spain's sovereign debt.

The news webpage elEconomista.es reported on an interview with De Guindos that will be published this Friday in the first Spanish edition of Forbes. According to the Spanish online source, De Guindos gives his impression of 2012 and is most proud of the fact that Spain was able to avoid what he terms as a "Greek or Portuguese style bailout".

The Finance Minister insisted that the contraction of 1.4% in the fourth quarter was "not nearly as bas as the 4% or 5% it would have been" if the country had requested that type of bailout. As it stands, Spain did receive a €60bn bailout for its financial sector.

De Guindos also noted his biggest regret: "I think we should have raised the VAT (value-added tax) earlier, at the beginning of 2012 instead of waiting until September."

With regards to the future, the Spanish Finance Minister remained cautious and directly stated that he didn't want to "create false expectations". Nevertheless, he insisted on the improvement in the economy since a year ago. "We do have a difficult first semester ahead but we are establishing the foundation for the recovery," he said.

In this context, De Guindos predicts an easing in the market pressure on Spanish sovereign debt yields. "I believe there is going to be a sharp drop in risk premium, down to around 200 points," he said. The spread with the German bund currently trades at 357 points.

JM

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