Olli Rehn, the European commissioner for economic and monetary affairs, has said that developments in the markets for Spanish and Italian government bonds were “not justified”.

Rehn today sought to reassure bond market investors that the Italian and Spanish economies were sound and that governments were taking action to reduce deficits and boost growth.

Referring to the recent plunge in the prices of Italian and Spanish government bonds, he said: “The market unrest witnessed in the last few days is simply not justified on the grounds of economic fundamentals. It is not justified for Italy. It is not justified for Spain.”

Eurozone recovery

He said that economic recovery was proceeding in most parts of the eurozone and that budgetary consolidation and structural reform were under way across Europe and particularly in those member states “most exposed to market tensions”, a reference to Spain and Italy.

Rehn blamed adverse market sentiment on the debt ceiling negotiations in the US and global data pointing to a slowdown in growth. 

Rehn said that Spain and Italy had committed themselves to “ambitious measures to reach fiscal consolidation and to put their economies back on track”.

Italy had taken measures to balance its budget by 2014, Rehn said, adding that “forceful implementation” of the measures was of “paramount importance”. He also praised the Italian government’s intention to enshrine a balanced budget in the constitution and planned welfare reforms.

‘Full steam ahead’

“The key priority for Italy now is to move full steam ahead and accelerate the necessary structural reforms to boost economic growth,” Rehn said.

He praised measures agreed by the Spanish government in fiscal consolidation, restructuring the banking sector, pension reform and labour and product market reform. He called for “forceful implementation” and efforts on fiscal consolidation, especially at regional level.

On a positive note, Rehn observed that an auction of Spanish bonds yesterday (4 August) had gone well, with the government able to sell the bonds at yields lower than recent market highs.