Spain 'ready to request bailout'

Mon, Oct 1, 2012, 01:00

Spain is ready to request a euro zone bailout for its public finances as early as next weekend but Germany has signalled that it should hold off, according to Reuters reports tonight.

The news agency said the latest twist in the sovereign debt crisis came as financial markets and some other European partners were pressuring Madrid to seek a rescue programme that would trigger European Central Bank buying of its bonds.

"The Spanish were a bit hesitant but now they are ready to request aid," a senior European source said. Three other euro zone senior euro zone sources confirmed the shift in the Spanish position, all speaking on condition of anonymity because they were not authorised to discuss the matter.

German finance minister Wolfgang Schaeuble has said Spain is taking all the right steps to overcome its fiscal problems and does not need a bailout, arguing that investors will recognise and reward Spanish reforms in due course.

Privately, several European diplomats and a senior German source said Chancellor Angela Merkel preferred to avoid putting more individual bailouts for distressed euro zone countries to her increasingly reluctant parliament.

"It doesn't make sense to send looming decisions on Greece, Cyprus and possibly also Spain to the Bundestag one by one," the senior German source said. "Bundling these together makes sense, due to the substance and also politically."

Participants said there were tense exchanges at a euro zone ministerial meeting in Cyprus in mid-September when Mr Schaeuble told his peers Berlin could not take another bailout for Spain to parliament so soon after lawmakers approved up to €100 billion to help Spanish banks in July.

Asked about the reports that Germany was urging Spain to wait, a German government spokesman told Reuters: "Every country decides for itself. Germany isn't pushing in one direction or the other."

A spokeswoman for Spain's prime minister Mariano Rajoy said she was not aware of any veto from Germany for an aid request.

"What we are focused on is to get the decisions of the June summit on the banking union implemented. That would send a strong message of confidence to the markets," she said, referring to an EU decision to centralise oversight of the biggest banks to avoid a repeat of a crisis that has some of its roots in the banking system.

European sources said EU economic and monetary affairs commissioner Olli Rehn was to deliver a message to Spanish leaders today that Brussels wants them to apply for assistance soon and will not impose onerous conditions beyond the reforms and savings measures outlined by the Spanish government.

Brussels is keen to avoid another outburst of the debt crisis by getting support to Spain before it is on the brink of being forced out of the bond market, at the risk of contagion spreading to Italy and other euro zone states.
Mr Rehn met Mr Rajoy and economy minister Luis de Guindos in Madrid and said afterwards the conditions of any aid programme were well known to all euro zone governments.

"Conditions would be based on country-specific recommendations that were decided for all 27 EU member states in July and there would be a clear set of policy priorities and clear timelines on the basis of these country-specific recommendations," he told a news conference.

Euro zone officials are considering a so-called Enhanced Conditions Credit Line that would keep Spain in the credit markets with support from the euro zone rescue funds in the primary bond market and from the ECB in the secondary market.

Mr Rajoy is eager to avoid the political humiliation of conditions being imposed from outside and enforced by the "troika" of inspectors from the International Monetary Fund, European Commission and European Central Bank that has supervised programmes for Greece, Ireland and Portugal.

There has been widespread speculation that Mr Rajoy was stalling a bailout bid until after October 21st regional elections in his home state of Galicia and the Basque Country.

But diplomats said it was German discouragement, not Spanish pride, that was now holding back a request for assistance.

Reuters