Spanish premier opens door to possibility of seeking bailout

Rail workers protest the government’s privatization plans Friday in Barcelona as Spain continues to deal with its debt crisis.
Rail workers protest the government’s privatization plans Friday in Barcelona as Spain continues to deal with its debt crisis.

— Spanish Prime Minister Mariano Rajoy said Friday that he would only consider asking for financial aid for his country once the European Central Bank has fleshed out its crisis-fighting plans for buying government bonds.

After months of denials, the statement was the closest the leader has come to an admission he is considering requesting a bailout.

Speaking to reporters, Rajoy urged Europe’s leaders and the central bank to speed up the introduction of key changes to fight the debt crisis and strengthen the struggling banking sector.

“I haven’t made a decision [on a bailout] yet,” Rajoy said after a Cabinet meeting. “I want to know what the unconventional measures proposed by the ECB are. We do not know what is being proposed.”

Rajoy was speaking a day after the central bank warned it would only help lower a country’s borrowing costs if that country’s government applied for rescue aid from the rescue funds set up by the 17 countries that use the euro.

The central bank’s announcement initially sent Spain’s borrowing costs spiraling again as investors expressed their disappointment and continuing concern over whether Spain can manage its finances and pay its debts.

Spain’s borrowing costs have risen sharply for all bond types in recent months as the uncertainty over whether the country can afford to contain the problems in its banking sector and indebted regional governments has continued unabated.

The interest rate, or yield, on Spain’s benchmark 10-year bond was at 6.82 percent just after Rajoy spoke — dangerously close to the 7 percent level, which many market-watchers consider unsustainable in the long term. Such rates could likely push Spain to seek a bailout, deepening Europe’s financial woes and sending repercussions to economies beyond the continent.

The yield had dropped to 6.5 percent last week after central bank chief Mario Draghi first hinted he would apply measures that would help ease the pressure on borrowing costs. By comparison, the rate demanded by investors for Germany’s more trusted 10-year bond was 1.34 percent.

Rajoy also told reporters that he had sent a letter to European Council President Herman Van Rompuy and his European Commission counterpart, Jose Manuel Durao Barroso, urging that recent proposals for greater EU banking union be approved in December.

“If we really want to speak of a political project, a project for the cohabitation of millions of citizens, disparities in financing of this caliber, that does not happen in any currency zone in the world,“ Rajoy told reporters.

“It is impossible, so it is important that this matter is resolved.”

Spain’s benchmark Ibex 35 stock index fell after opening but rallied upward in the afternoon to claw back the losses it suffered after Thursday’s central bank announcement.

Spain already has been granted a loan of up to $125 billion for banks laden down with toxic assets after the bursting of a real-estate bubble in 2008. Progress on European Union banking and fiscal unity could help it get that money passed straight to the banks soon and not form part of its already heavy sovereign debt burden.

Greece, Ireland, Portugal and Cyprus have already sought bailouts, but a Spanish sovereign rescue package would seriously test the European Union’s coffers as it is the fourth-largest economy of the 17 nations using the single euro currency.

But some analysts think it’s only a matter of time.

“It looks quite clear that we are finally going to need some kind of aid,” said Tomas Gallo, director of ATL Capital Investment Co. in Madrid.

“The tug-of-war is that we want it be given to us without asking specifically for it, and those who will give it to us want us to ask for it, for us to compromise, to follow some measures, a commitment that we have still not acquired. But this will finally happen,” he said.

Information for this article was contributed by Alicia Lopez and Barry Hatton of The Associated Press.

Business, Pages 29 on 08/04/2012

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