Italy's high borrowing costs don't justify aid, says Bundesbank president

?Of course I can understand why a country would want to lower its refinancing costs,? Weidmann said in an interview with German financial newspaper Boersen-Zeitung. ?But because of the last-resort aspect of financial aid in the currency union, that alone can?t be a justification for granting it.?

?If Italy stays the course on reforms, it?s on a good path,? Weidmann told the German newspaper. Asked whether the euro area?s third-largest economy needs to tap the planned European Stability Mechanism, he said, ?No, I don?t see Italy in that situation.?

The European bailout for Spanish banks would be more effective if aid conditions extended to the country?s economy, Weidmann said. He cited high unemployment and problems in Spain?s regions as signaling a ?considerable need? for further action, according to the interview.

?If investors saw that the conditions for the aid program go beyond the banking sector, that would have a positive effect on the bond market,? Weidmann said, referring to Spain. The Spanish government?s recent policy changes indicate that it understands the need for broad reform, he said.

Spanish Prime Minister Mariano Rajoy outlined ?65bn euros in social-welfare cuts and sales-tax increases on July 11 in a bid to retain financing and prevent a meltdown of the fourth-biggest euro economy. The measures are Rajoy?s fourth austerity package in seven months in office.

Source: http://telegraph.feedsportal.com/c/32726/f/568300/s/21571b7b/l/0L0Stelegraph0O0Cfinance0Cfinancialcrisis0C940A0A1370CItalys0Ehigh0Eborrowing0Ecosts0Edont0Ejustify0Eaid0Esays0EBundesbank0Epresident0Bhtml/story01.htm

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