BERLIN (AP) - Spain's prime minister is urging the European Central Bank to go ahead with a bond-buying program aimed at lowering the borrowing costs of debt-ridden governments like his own, saying in comments published Sunday that eurozone state financing rates need to be similar for the currency union to function.
The ECB holds a meeting Sept. 6 where plans to intervene in bond markets will be discussed, and bank head Mario Draghi has suggested that he was prepared to take "exceptional measures" to restore stability to the 17-nation eurozone.
Spanish Prime Minister Mariano Rajoy told Bild newspaper in an interview published Sunday that Draghi's suggestion that the ECB could help indebted governments lower their borrowing costs by buying their bonds shows "a determination to solve the problem."
"A monetary union cannot function when some of its countries finance themselves with negative-interest, while others must raise money with unsustainably high interest rates," Rajoy was quoted as saying.
Troubled eurozone countries like Spain, Italy and Greece have been paying high rates - with 10-year Spanish bond yields currently at about 6.5 percent - because bond investors fear they may default. Yet the governments must constantly sell new bonds to pay off old ones that are coming due. High borrowing costs were what pushed indebted countries Greece, Ireland and Portugal to need bailout loans from the other eurozone countries.
On the other hand Germany has been borrowing money at below the inflation rate as investors accept taking a loss to hold the super-safe securities.
"Draghi has pointed out that above all, doubts about the irreversibility of the euro, and not any objective differences in the economic fundamentals of the euro countries, are responsible for this dangerous interest rate differential," Rajoy said. "If we want to preserve the euro, which has brought us greater prosperity, then we must send an unmistakable signal that there will be no going back."
The ECB's plans have sparked a fierce debate in Germany, which is the biggest backer of Europe's financial rescue efforts. The country's national central bank is against the bond-buying idea, along with many academic economists, conservative politicians and voters. They argue that it puts taxpayer money at risk and breaks the European Union treaty provision barring the ECB from directly backing governments.
Chancellor Angela Merkel has indicated she's open to the ECB's plans and has publicly admonished members of her governing coalition to tone down angry remarks about debt-stricken countries such as Greece.
Merkel is scheduled to meet with Rajoy in Madrid on Thursday, the same day the ECB holds its meeting to talk about the bond issue.
Key questions remain about how the ECB purchases would work and how big they might be, but Draghi has said the bank's help would only come if the countries first ask for help from the region's bailout fund and agree to take steps to reduce their deficits and debt levels.
Rajoy said Spain has already demonstrated a willingness to take such measures, and had no problem with Draghi's need for conditions.
"We are also aware of our public finance problems, and that we need to undertake further reforms," he said.
He also said the eurozone should do anything possible to prevent a Greek exit, saying that if the country left it would be a "gigantic blow not only for Greece but for the whole European Union."
"The Greeks and the rest of us must show that Europe is able to solve this problem..." he said. "A withdrawal of Greece would be an indictment of the entire EU."