HIGH BORROWING costs for some European countries compared with Germany’s may justify market intervention by the European Central Bank, French president François Hollande said yesterday.

“The ECB’s mandate include price stability and monetary policy,” Mr Hollande told a news conference after meeting Spanish prime minister Mariano Rajoy in Madrid. “When you see such wide gaps in yields, that could be a justification for an intervention in the name of monetary policy.”

ECB president Mario Draghi is expected to flesh out his plans next week for a bond-buying programme he announced earlier this month, conditional on countries first applying for aid to the euro zone’s rescue fund.

Mr Rajoy, of the centre-right People’s Party, reiterated after his meeting with Mr Hollande, a Socialist, that he is waiting to hear more about the programme before deciding whether his country will apply for European aid.

A rescue from Europe would likely combine ECB buying of Spanish bonds on the secondary market with the European rescue fund, or EFSF-ESM, buying Spain’s debt issues at primary auctions.

The aid would likely come with additional conditions beyond what has already been imposed on Spain in return for up to €100 billion in European aid for Spanish banks that is in the pipeline.

It is up to Spain to decide whether it wants to request further aid, Mr Hollande added.

Both leaders expressed their backing for Greece as it struggles to implement tough measures that were conditions for its sovereign bailout, the first in the euro zone.

European leaders should show support for Greece at an October 19th EU summit if the crisis-hit country’s conservative government shows commitment to moving ahead with economic reforms, Mr Hollande also said.

Mr Rajoy, who has raised income tax and value-added tax in Spain this year, said he would try not to raise taxes in next year’s budget, although he said difficult decisions were sometimes necessary. He has announced €65 billion in budget cuts to try to bring the public deficit to 3 per cent of gross domestic product by 2014.

However, with the economy in recession, the tax take dropping and the jobless rate stubbornly high at close to 25 per cent, more painful austerity may still be in the works for Spain. – (Reuters)