Spain Is Ready for ECB Taper Next Year, Treasury Chief Says

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Spain has taken steps to prepare for the gradual tapering of European Central Bank stimulus next year and expects policy makers to avoid a market disruption, the new head of the country’s Treasury said.

“The biggest risk with these type of measures or withdrawing stimulus would be to do it too quickly,” said Carlos Cuerpo, who took over as secretary general at the beginning of the month. “I think in principle we can rule that out.”

Speaking in an interview in Madrid, Cuerpo said that “given the attitude and the comments from different central banks, what we would expect” are “much more progressive measures.”

ECB President Christine Lagarde may announce later on Thursday that the central bank will slow down the monthly pace of emergency asset purchases, which it stepped up earlier this year. Such a move is expected to pave the way for an eventual tapering of the emergency program known as PEPP next year. 

“We are ready -- the Treasury has been doing its homework,” Cuerpo said. “We have extended maturities, which along with other policies have reduced our financing risks so we can be ready for when economic conditions improve enough for a gradual withdrawal of stimulus” by the ECB. 

The potential shift in central-bank policy is of critical importance to countries such as Spain, which last year was forced to roll out fiscal stimulus that increased its debt-to-GDP ratio to 120%.

Green Bond

Spain raised 5 billion euros ($5.9 billion) from the sale of an inaugural green bond on Tuesday. The Treasury said it had more than 60 billion euros of demand amid a hot market for green debt.

“The issuance of green bonds is here to stay,” Cuerpo said. “Moving forward, it’s going to become a structural element in issuance plans.”

Spain said in July said it would cut its net debt issuance this year by 20% to 80 billion euros in part because of a stronger-than-expected economic rebound.

“We have had continuous positive surprises since March,” Cuerpo said. “The whole narrative about short-term risks associated with the pandemic has shifted to a balance of risks that’s lesser and also more protracted, more medium-term.”

One immediate risk that has dissipated is the concern about a notable spike in corporate defaults. “The data and the preliminary analysis that we are seeing,” Cuerpo said, “lead us to be optimistic.”

Cuerpo was the head of macro-economic analysis at Spain’s economy ministry before he took the helm at the Treasury. He succeeded Carlos San Basilio, who held the post for more than three years. 

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