ECB resists Madrid's call for intervention
SPAIN ENDURED another day of turmoil as the European Central Bank rebuffed calls from the Madrid authorities to revive its emergency interventions to stabilise bond markets.
The increasingly uncertain outlook for the country comes as the European Commission prepares today to unveil detailed economic policy recommendations for all member states.
The commission’s position for Spain will be closely observed in the light of speculation that the country might be offered more time to close its budget deficit. Spain, however, has been resisting such overtures on the basis that any such move might further undermine investor confidence.
The recommendations for EU-International Monetary Fund bailout recipients such as Ireland are in keeping with their rescue programmes.
As Spain grapples with the mounting cost of supporting its stricken banks and autonomous regions, government ministers have repeatedly called on the ECB to take new action to calm market tensions. Spain insists it does not need external aid, but a steady increase in its borrowing costs has fanned scepticism about its power to continue funding itself. In spite of public and private pleas from Madrid, the ECB is reluctant to step into the fray again.
Late last year and earlier this year, Spanish banks used their portion of the ECB’s €1 trillion cheap loan scheme for euro zone banks to buy up Spanish bonds but now the money is spent.
While ECB bond purchases helped Spain last autumn, governing council member Eward Nowotny said yesterday that a revival of that initiative was not planned. “This for the time being is not a matter of discussion,” said Mr Nowotny, who is chief of Austria’s central bank.
The increasingly uncertain outlook for the country stems from anxiety that the latest €19 billion bailout of the Bankia savings bank group is but the prelude to a further series of expensive bank rescues.
Spain has hired external auditors to carry out a new banking stress test to assess the impact of mounting property losses.
The result of the stress test is expected at the end of June.
This examination has led to concern that the final bill might overwhelm the government in the same way as the rising cost of the Irish bank rescue prompted the 2010 EU-IMF bailout.
Similarly, a demand from the wealthy region of Catalonia for the central government’s help to refinance its debt has focused attention on the weak position of the regional authorities.
Even with Spain’s 10-year borrowing cost approaching the “unsustainable” 7 per cent level, the government plans to issue new debt to prop up Bankia. Further government measures are planned to help the regions to borrow.