Rajoy prepares to meet Merkel on key day for Spain

German Chancellor Angela Merkel is due to meet with Mariano Rajoy on Thursday, the very same day that European Central Bank chief Mario Draghi is due to unveil the terms under which the ECB will renew its bond-purchasing program, a move the under-fire Spanish prime minister has been championing for months.

Merkel has proved more conciliatory of late over ECB intervention but Bundesbank President Jens Weidmann remains strongly opposed to such assistance, arguing it breaches the EU treaty and eases pressure on euro-zone members to pursue fiscal consolidation. Earlier this week Draghi said purchasing sovereign debt with maturities of up to three years did not breach its mandate.

However, Draghi has conditioned intervention in the secondary market to euro-zone members first requesting the European rescue funds to buy their debt in the primary market. This would in all certainty be accompanied by demands for further austerity measures at a time when the Spanish economy has been hit by a double-dip recession.

Rajoy has said he will wait until Draghi sets the conditions for renewing bond purchases before weighing up whether to tap the European Financial Stability Facility and its permanent replacement, the European Stability Mechanism. The German Constitutional Court is to rule on the legality of the latter next week.

Rajoy is expected to canvass support from Merkel for no further strings to be attached to a second bailout, arguing that Spain is committed to bringing its deficit back within the EU ceiling of three percent of GDP on schedule and has introduced meaningful structural reforms of its labor market and banking system.