Spanish prime minister Mariano Rajoy inched closer yesterday to asking for an EU bailout for his country, but said he first needed to know what conditions would be attached and what form the rescue would take.
His comments came a day after the ECB signalled it was preparing to buy Spanish and Italian bonds but only after EU bailout funds were triggered and countries had asked for help.
A source said separately that Spain would not decide whether to apply for several weeks. Buying bonds and providing aid would all be designed to bring down what have been prohibitive borrowing costs in the indebted countries.
“I will do, as I always do, what I believe to be in the best interest of the Spanish people,” Rajoy said.
Regarding comments by ECB president Mario Draghi that the bank was examining non-conventional measures to defend the euro, Rajoy said: “We still don’t know what these measures are.
“What I want to know is what these measures are, what they mean and whether they are appropriate and, in light of the circumstances, we will make a decision, but I have still not taken any decision.”
In a letter to Herman Van Rompuy yesterday, Rajoy urged the president of the European Council to work towards creating a eurozone-wide banking and fiscal union as soon as possible.
He said he believed the outline for a single supervisory system for the banking sector should be ready before the end of this year.
Rajoy added he believed granting the ESM, the permanent bailout fund, a banking licence would allow it to tap almost unlimited funds from the ECB.
Draghi on Thursday said the fund was barred by European law from tapping the central bank for funding.
“In any case, whatever mechanism is put into place should be an umbrella mechanism, one that is applied equally to all the countries that meet its requirements,” Rajoy wrote.
An aid request would entail negotiating a memorandum of understanding with other eurozone countries and would likely bear strong conditionality, something Rajoy wants to discuss in detail first.
Although Spain already complies with stringent EU and IMF demands to reform its economy and has announced a package of €65bn of tax hikes and spending cuts in July, the government fears it could now be asked to reform further the pension system.
The measure is the last campaign pledge Rajoy has not been forced to break so far and could undermine even more the support for the government after it already fell sharply in recent weeks as hundreds of thousand of Spaniards took the streets to protest.
The indebtedness of Spain’s banks and regions, along with a shrinking economy, set to be in recession until well into next year, have all pushed debt costs to new record highs.
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