On the alleged plans for a Spanish bailout
“It is categorically not true,” said a spokesman from the party, which is led by Mariano Rajoy. The spokesman was commenting on a report by Reuters on Friday that the PP had discussed plans to seek a rescue package.
There is an old saying that you never know a rumour is true until it has been officially denied. I think that saying holds here in the case of Spain. Listen carefully to former Spanish premier Aznar in this video from last week. Nowhere does Aznar say that Spain will not seek a bailout. In fact, he insinuates that Spain may be forced to do so if markets are not calmed by his party’s credibility on fiscal discipline.
I would go further and say that Spain must seek a bailout if the bailout rumours about Italy are to be believed.
Here’s what we have heard:
- 22 November 2011: Rajoy asks Merkel for "help from EU institutions" for Spain (El Pais): "Rajoy has expressed the need for countries that comply [with what Brussels requests] to be aided by community institutions. He explained that not everyone, those complying and those who are not, can receive the same treatment," [Dolores de Cospedal, secretary general and president of Castilla-La Mancha] said, suggesting that Spain, which according to Brussels is one of the ones that is fulfilling what Brussels has requested, should be among those countries which the ECB aids with their purchases [of government bonds].
- 17 November 2011: Spain’s prime minister pleads for help from EU and ECB as yields climb (The Guardian): Spanish prime minister José Luis Rodríguez Zapatero made a direct appeal for intervention by the European Union and the European Central Bank (ECB) on Thursday as the country’s borrowing costs soared to levels widely considered to be unsustainable.
Bottom line: Spain’s outgoing, incoming and last prime ministers are all three saying that Spain may need help from “community institutions”.
In the context of the flurry of activity this weekend, it seems to me that any deal that Italy gets will also have to be given to Spain. Here are the rumoured deals on the table right now.
- So, the secret Franco-German bilateral aid plan would apply to Spain.
- The ECB funded IMF loan for Italy must be given to Spain as well, meaning we are not talking about 600 billion euros but more like 1 trillion euros.
- The talk about Eurobonds being issued after a bilateral aid and fiscal oversight deal would have to include Spain.
- And finally the suggestion that the ECB would monetise sovereign debt after such a bilateral deal would have to include Spain as well.
There was one line in the El Pais story which caught my eye in this respect. It reads:
Merkel es quien más se está resistiendo al que de momento parece el único remedio frente a las primas disparadas de Italia y España y hasta 12 países del euro. [Translation: Merkel is the one who is most resistant to what at the moment seems to be the only remedy in the face of yields shooting up in Italy, Spain and as many as 12 other countries in the eurozone].
Get that? 14 countries are under stress according to El Pais. So, I suggest any plan that we are likely to see in the coming days will not be just about Spain or just about Italy; it will be a comprehensive deal that encompasses the whole of the euro zone, Slovenia, Belgium, Austria, you name it. To me, this says that even apart from US objections, an IMF deal for Italy looks less likely whereas a bilateral aid deal followed by ECB rate targeting, monetisation and/or Eurobonds is more likely.
Update: Alice Cook at UK Bubble points me to this link in the Telegraph confirming that Spain is indeed in the mix as far as the IMF deal goes: IMF drawing up £517bn package to save Italy, Spain and the euro