In Madrid on Wednesday. EFE
Spain does not imminently need a bailout to help address its economic woes, the Spanish Prime Minister, Mariano Rajoy, insisted this week.
“It’s not necessary at this moment. The instrument exists and any country can ask for it if it needs to. And I will do just that when it is in Spain’s best interests to do so,” he said at a joint press conference with his Italian counterpart, Mario Monti, in the Spanish capital on Monday.
Mr Monti was in Madrid for a bilateral summit which brought together the two premiers, plus finance ministers and business leaders from both countries. It was the fourth time that such meetings between Italy and Spain have taken place since the prime minsters took office in their respective nations in the autumn of 2011.
As the third and fourth largest eurozone economies, both Italy and Spain are widely regarded as ‘too big’ to be fully rescued should they lose access to bond markets. As a result, they have been under mounting pressure from investors to accept a ‘soft bailout’ which would allow the European Central Bank to start buying government bonds in the two countries to bring down their high borrowing costs. But both leaders are keen to avoid asking for such external financial aid as it is deemed politically risky.
At Monday’s press call, Mr Monti also rejected claims that his country needed a bailout but added that at least one nation should tap the new bond-buying programme to show the markets that the ECB was determined to defend the Euro.
“It’s vitally important that the instrument is shown to work so it does not just seem theoretical,” he asserted in what appeared to be a thinly disguised nod to Spain.
However, both Rajoy and Monti publicly slammed Berlin’s proposals for a European Union ‘Super Commissioner’ who would scrutinise and monitor national budgets and punish countries with large deficits.
“Considered on its own merits, I personally don’t like this idea,” said the Spanish PM. His reaction once again, say commentators, flags-up divisions between Germany and southern Europe.
To justify his stance that Spain does not require a bailout, at least for the time being, Rajoy is using the fact that in recent weeks Spain’s borrowing costs have fallen from wildly unsustainable 7 per cent highs to an average of 5.5 per cent, following the ECB’s announcement of its new bond-buying mechanism in early September. Whilst this is, indeed, progress, the corporate sector is still pushing for the government to seek financial assistance sooner rather than later.
‘Markets would rally’
Brian Berry, an economic analyst from Investec, tells this newspaper: “If Spain requests a bailout I think we can expect the markets to rally significantly, but Rajoy is still holding out which is alarming.”
Similarly, Luisa Carmichael, an economist at investment bank Nomura, says: “The impasse of not wanting to seek a bailout is causing ongoing market angst.”
Whilst two weeks ago, María Dolores Dancausa, the chief executive of Bankinter, the sixth-largest listed commercial bank in Spain, said in a statement: “It’s preferable to surrender to the evidence and request help.”
Market investors will be particularly concerned by Mariano Rajoy’s belief that Spain has no immediate need to use the European Central Bank’s bond-buying programme, following days of disappointing data which, once again, highlights the country’s vulnerable economic situation.
Specifically, retail sales have plummeted by 11 per cent in a year since last September according to the Institute of National Statistics, the Bank of Spain confirms that Gross Domestic Product has fallen for a fifth consecutive quarter, there are the highest quarterly jobless numbers on record, and figures on public finances and consumer prices released on Tuesday indicate a worsening economy amid the toughest austerity measures in decades.