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Spain: decision on bailout within weeks

Source : AP
Last Updated: Wed, Oct 17, 2012 10:45 hrs

The Spanish government said Wednesday it will decide within the next few weeks whether to ask for outside financial help, noting it might opt for a precautionary line of credit instead of bailout cash.

Spain is under pressure to tap a eurozone financial aid system that would give the European Central Bank the green light to buy the country's government bonds. That would lower Spain's borrowing rates in bond markets, relieving its financial burden.

A spokeswoman for the Spanish economy ministry, said the government was also still considering not asking for any aid at all, not even a credit line. She was speaking on condition of anonymity in keeping with ministry policy.

The issue is likely to dominate a summit of the 27 leaders of the European Union on Thursday and Friday.

Germany has said Spain does not need a bailout and Prime Minister Mariano Rajoy may be reluctant to accept a rescue ahead of regional elections this Sunday. But analysts say that if Spain delays the request too long, investors may grow jaded and sell off its bonds again.

Rising speculation that Madrid will ask for help soon eased pressure in the bond markets Wednesday.

The interest rate on the country's benchmark 10-year bond was down 0.22 percentage points to 5.55 percent in midday trading. It has hovered close to 6 percent in recent weeks amid uncertainty over whether Spain would apply for aid or not.

The market improvement was also partly due to relief that Moody's rating agency did not cut its credit grade on the country to junk status, as had been widely feared in recent weeks. Instead, Moody's said after the European market close on Tuesday that it was keeping its Baa3 rating on Spain, the lowest investment grade.

Spain is at the core of Europe's financial crisis because, as the fourth largest economy in the 17-country eurozone, it would be hugely expensive to rescue should it lose access to bond markets.

The country financial problems did not stem from government overspending, as in Greece's case, but from huge losses that its banks incurred after a property sector crash. Regional governments are also heavily in debt and need help from the central government in Madrid.

The economy is also in terrible shape — it is in its second recession in three years, unemployment is near 25 percent and forecasts for the coming year are grim.



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