UPDATE 3-Spain calls for fiscal integration of euro zone

* Spain bond tender goes well, but yields still jump

* Expects to cut issues of new debt in 2011

* PM says time has come for common euro zone fiscal policy

* Spain sells 2.5 bln euros in 3-yr bonds, yields jump

(Updates with mkt moves, Bank of Spain comments)

By Paul Day

MADRID, Dec 2 (BestGrowthStock) – Spain insisted on Thursday it will
not need to tap a rescue fund but Prime Minister Jose Luis
Rodriguez Zapatero said the time has come for the euro zone to
move towards a more integrated fiscal and economic policy.

Spain is quickly moving into the eye of the storm in
Europe’s debt crisis and its cost of borrowing at a three-year
bond tender on Thursday was around 50 percent higher compared to
the beginning of October.

But the jump was not as bad as feared and demand was solid,
reflecting expectations the European Central Bank will prop up
markets with more bond buying and the belief of some players
that Spain is not as much at risk as recent market action
suggests.

“Spain isn’t going to have to tap any EU fund or resort to
them,” Spanish Prime Minister Jose Luis Rodriguez Zapatero said,
according to a transcript of an interview with CNBC.
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With billions in aid for Greece and Ireland having failed to
stem the debt crisis, EU policymakers have begun to think of
radical solutions, with ideas so far mentioned on the sidelines
of meetings, discussed informally or only sketched out.

The argument for a more unified approach on budgets is that
the lack of a full fiscal union among the 16 euro members
creates tensions and risk differentials that are now being
exploited.

“What Spain advocates is that if we have a single currency,
it’s not enough just to have a central bank, a single central
bank. It’s not enough to have a single monetary policy. We also
need to have a common economic policy,” Zapatero said.

“We need to have a much more integrated fiscal policy, ” he
added.

FIGHTBACK

The interest investors charge on Spanish benchmark 10-year
bonds (ES10YT=TWEB: ) over the German benchmark (DE10YT=TWEB: )
narrowed for a second day on Thursday, after hitting a euro era
high above 300 basis points on Tuesday.

After a brief rally following the auction, the leading
Spanish blue-chip index, the IBEX (.IBEX: ) later turned negative
after the European Central Bank gave no commitment to step up
the pace of its sovereign bond-buying programme.

That pushed the benchmark bond spread out to 243 bps.

The euro zone’s largest bank Santander (SAN.MC: ), however,
was up 1.1 percent and BBVA (BBVA.MC: ) up 1.2 percent at 1429
GMT. The two banks make up around 30 percent of the IBEX.

The Bank of Spain said Spanish banks were accessing the
interbank lending markets as normal. [ID:nMDT009554]

Madrid on Wednesday announced the sale of stakes in leading
airports and its state lottery as well as plans to raise tax
brackets for smaller companies and cut one-off welfare payments
for the long-term unemployed. [ID:nLDE6B015A]

The privatisation proposals were met with almost immediate
opposition by unions at state-owned airports operator AENA. The
unions said they would meet next week to “establish a calendar
of conflicts, demonstrations and strikes in all the airports and
control centres”.

Economy Minister Elena Salgado said in an interview with the
Financial Times the sale of state assets would allow it to
reduce new debt issues next year by around a third to 30-31
billion euros ($40.6 billion).

The government’s biggest problem, however, remains growth
and how to reboot its economy after the collapse of a property
boom that had driven rising prosperity over the past decade.

The Labour Ministry said the number of registered jobless
rose in November and would top 20 percent of the workforce in
the fourth quarter overall, after falling for the first time in
3 years in the third. [ID:nLDE6B10F0]

Salgado noted Italy and Belgium as well as Spain and
Portugal had been hit by volatile market movements. These have
pushed Spanish 10-year bond yields to as high as 5.6 percent
from 4.2 percent a month earlier.

UPDATE 3-Spain calls for fiscal integration of euro zone