Spain creeping towards full bailout
Spanish Prime Minister Mariano Rajoy
inched closer today to asking for an EU bailout for his country, but said he
needed first to know what conditions would be attached and what form the rescue
would take.His comments, at his first post-cabinet meeting news conference
since taking office last December, came a day after the European Central Bank
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.Rajoy said he
was ready to do what is best for Spain, going far further than he did on
Thursday when, during a press appearance with Italian Prime Minister Mario
Monti, Rajoy three times declined to say whether he would seek the aid."I
will do, as I always do, what I believe to be in the best interest of the
Spanish people," Rajoy said yesterday."We still don't know what these
measures are," he said, reference to a comment by ECB President Mario
Draghi that the bank was examining non-conventional measures to defend the
euro."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," he said.A source
familiar with Rajoy's thinking confirmed this possibility was actively looked
at and that Rajoy was ready to bear the political cost of a request.In a letter
to Herman Van Rompuy on Friday, Rajoy urged the president of the European
Council to work towards creating a euro zone-wide banking and fiscal union as
soon as possible.He said he believed that 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 European Stability Mechanism (ESM), the
permanent bailout fund, a banking licence that would allow it to tap almost
unlimited funds from the European Central Bank (ECB)ECB President Mario 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 said in the letter.Spain has already asked
for aid for its stricken banks."People have said the main reason why he is
not seeking help is because he is too proud. But this is not true. He requested
an assistance for the banks because it was the adequate instrument to solve a
specific problem. There is no opposition to do it again," the source
said.An aid request would entail negotiating a memorandum of understanding with
other euro zone countries and would likely bear strong conditionality,
something Rajoy wants to discuss in detail before moving forward.Although Spain
already complies with stringent EU and International Monetary Fund demands to
reform its economy and has announced a package of 65 billion euros 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
thousands of Spaniards took the streets to protests against austerity steps.A
euro zone official told Reuters last week Spain had for the first time conceded
at a meeting between Economy Minister Luis de Guindos and his German
counterpart Wolfgang Schaeuble it might need a full bailout worth 300 billion
euros if it's borrowing costs remain unsustainably high.Rajoy's office however
denied that talks on this issue had taken place.People who discussed the
question with Rajoy explain that he may still hope to avoid making the request
because he thinks by just knowing that the EU rescue funds and the ECB are
geared up would be enough to shield Spain from market pressures."The
thinking is that the instruments need to be in place and possibly the risk
premium will go down so much that there will be no need to go any
further," said one senior politician.
Euro Crisis 2012: Greece Reportedly Saved From Bankruptcy By European Central Bank
The European Central Bank (ECB) has
saved Greece from bankruptcy for the time being by securing it interim
financing in the form of additional emergency loans from the Bank of Greece,
German newspaper Die Welt said on Saturday.The ECB's Governing Council agreed
at its meeting on Thursday to increase the upper limit for the amount of Greek
short-term loans the Bank of Greece can accept in exchange for emergency loans,
the newspaper said in an advance copy of the article due to appear in its
Saturday edition.Until now the Bank of Greece could only accept T-Bills up to a
limit of 3 billion euros ($3.70 billion) as collateral for emergency liquidity
assistance (ELA) but it has applied to have this limit increased to 7 billion
euros, the daily said, citing central bank sources.The ECB Governing Council
gave this wish the green light, the paper said.The move should enable the Greek
government to access up to an extra 4 billion euros of funds, the paper said,
adding that this should ensure the country keeps its head above water until the
"troika" of the European Union, the European Central Bank and the
International Monetary Fund decide on the disbursement of the next tranche of
money from its aid program in September.The ECB declined to comment, the paper
said.
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