Spain sovereign bailout facing new eurozone opposition

Spain sovereign bailout facing new eurozone opposition

24th September 2012, Comments 2 comments

Spain's call for a full sovereign bailout faces newly-expressed opposition from Germany.

A Spanish cry for a full sovereign bailout, seen as a racing certainty over the summer, faces newly-expressed opposition from Germany even as EU officials lay the groundwork should one be judged necessary in Madrid.

German Finance Minister Wolfgang Schaeuble said on Friday that Spain did not need a further aid programme on top of promised loans to recapitalise its banking sector, but that Madrid was suffering from a lack of confidence on the financial markets.

Schaeuble told members of the foreign press that he was "steadfast" in agreeing with the government in Madrid that "Spain is on the right path and needs no further programme".

"What Spain needs is confidence in the financial markets and there Spain really has problems," he said.

Spain sovereign bailout facing new eurozone opposition

"It is hard to deny that Spain's standing on the financial markets does not take the real economic data sufficiently into account," he added.

Eurozone sources have said that the past week has been marked by shifting opinions, with Germany and Spain resisting pressure from France and the European Commission for Madrid to request a full bailout.

This drift follows significant divergences laid bare between what Germany and France see as the way forward for the currency area as a whole, going into a trio of difficult EU summits before the year ends.

The European Commission said on Friday it was working with the Spanish government on a national reform programme due to be announced next week, but insisted that this did not mean it was preparing a sovereign bailout.

"Further decisive progress in taking forward the reform agenda is we believe the best way for Spain to re-establish confidence," said Simon O'Connor, spokesman for EU Economic Affairs Commissioner Olli Rehn.

Under the banking aid deal, worth up to 100 billion euros awaiting new IMF figures for recapitalisation needs due next week, Spain agreed to reforms in the sector and wider economy so as to avoid a repeat of the banking sector's disastrous over-exposure to a collapsed property market.

There has been mounting speculation that Madrid may now seek a full rescue on top of that agreed for its banks, a step that was said to be politically possible only once "conditions" it would have to meet in that event were thrashed out.

Another EU source said "our approach is to be prepared in case there is fresh pressure placed on Spain by markets going forward".

The risk premium for Spanish borrowings "is manageable", this source said, having fallen below levels considered critical in previous bailout cases.

The idea then is that the Commission can get itself "ready" so it can say further down the line that "no extra conditions will be required" in the event Spanish Prime Minister Mariano Rajoy does formally ask for a bailout.

Analyst Ben May of Capital Economics in London for one argued on Friday that "the main reason why bond yields have remained pretty low is that markets still expect Spain to seek assistance soon".

A new risk for Spain could come as early as Tuesday, with Catalan leader Artur Mas tipped to call elections after Rajoy rejected a demand for full fiscal autonomy.

In a bid to ease the risk of a full-blown constitutional and political crisis on top of its economic problems, the government in Madrid said on Friday that it would look to "reform" financing models for Catalonia and other territories.

AFP / Expatica

2 Comments To This Article

  • chhajuram advocate induscharwak posted:

    on 26th September 2012, 17:23:04 - Reply

    Evolutionary stage of capitalism demands single Europe nothing less otherwise going to hell for Almost so called nation states in Europe.
  • Robert posted:

    on 26th September 2012, 11:16:00 - Reply

    It is a comfort to know that there is no hurry to resolve the so-called crisis as Germany and France bicker like two dogs over a mangled bone. Thankfully it is the Year of Active Ageing.
    Extract from EU Website:
    "The first steps were to foster economic cooperation: the idea being that countries who trade with one another become economically interdependent and so more likely to avoid conflict.....a huge single market has been created and continues to develop towards its full potential." What a relief. I was starting to think it might become a Germany/France dominated Europe