French President Francois Hollande (L) and Spanish Prime Minister Mariano Rajoy at a joint news conference yesterday. EFE
Spain has in recent days been negotiating with eurozone officials over the conditions for financial aid, three eurozone sources have told news agency, Reuters.
Unsurprisingly, the rumours have fuelled speculation that the country is on the verge of seeking a full bailout, although Madrid has as yet made no such request and has declined to comment on the claims.
However, many experts have said the ‘will-they-won’t-they’ scales tipped even further in favour of ‘they will’ on Tuesday, when the regional government of Cataluña said it needs five billion euros from central government rescue funds.
And after figures from Spain’s National Institute of Statistics showed last week that the country's recession is worse than was thought, with the economy contracting at an annual rate of 1.3 per cent in the second quarter of 2012, the usually tight-lipped Prime Minister, Mariano Rajoy, has now admitted that he is considering bailout options.
The question of whether Spain will indeed ask for a full bailout is still dividing opinion amongst leading international economists contacted by SUR in English this week.
Senior Market Strategist at CMC Markets, Brenda Kelly, says: “It’s no longer a question of ‘if’ but ‘when’ for Spain.
“But whether a bailout program will create more hardship with huge conditionality attached is the key question.
“At this juncture, it appears to be a game of ‘Chicken’ - which will occur first: the ECB deciding to act in order to bring down peripheral bond yields? Or Spain approaching the ‘powers that be’ cap in hand?
“I would suggest that nothing will be done until the end of September at the earliest.
“With regards to the bailout itself, certainly there will be advantages in that Spain should be able to borrow at cheaper interest rates, but as ever, nothing in a bailout targets the real underlying problem. It merely addresses further debt issues not the existing ones.”
Similarly, Raoul Ruparel, the Head of Economic Research at Open Europe, an independent think tank, states: “I do believe that there could well be some truth in the rumours of a full Spanish sovereign bailout. We do not expect a request before the German Constitutional Court ruling on the ESM on 12th September. That said, Spain has a significant amount of debt to rollover in October so we could well see a request towards the mid to end of September.”
However, others insist that a bailout is improbable.
“I think a comprehensive bailout of Spain, similar to the bailouts of Greece and Portugal, is impossible as it would need 80 billion euros and there’s not enough available funds,” Dr. Santiago Niño-Becerra, Professor of Economic Structures at Barcelona’s Ramón Llull University, tells this newspaper.
“What I do think might happen, however, is that the European Central Bank will buy more public debt for 20 or 30 billion euros, even though I don’t believe this will be sufficient because Spain’s problem is not so much public debt but that there’s no growth and there’s monstrous private debt.”
He continues: “A bankrupt Spain is unthinkable because due to the size of its economy and the exterior debts, there would be terrible effects in Europe, the USA and Japan.”
For their part, the eurozone authorities are being typically taciturn on the issue, with the European council president, Herman Van Rompuy, saying this week that the decision to seek aid was “one for Spain to make.”