Merkel meeting buys Rajoy more time to decide on bailout

Spanish Prime Minister Mariano Rajoy on Thursday appeared to have bought some time to decide whether or not to seek a European bailout after meeting in Madrid with German Chancellor Angela Merkel, who voiced her strong support for the austerity measures he has introduced.

“I didn’t come here to say what reforms Spain should or should not take. I have plenty of confidence in the Spanish government and I am impressed by the measures it is taking,” Merkel said during a news conference after their meeting.

Merkel also told the press that she had not discussed conditions for a possible bailout, which saw the market rally and helped to push Spain’s borrowing costs down.

Rajoy has said that he wants to wait and see what conditions EU leaders, including the head of the European Central Bank (ECB), would impose on Spain if his government were to ask for a bailout. In Frankfurt, ECB president Mario Draghi announced that the bank would embark on a new bond-buying scheme but with “strict and effective” conditions for countries that ask for it (see story, right and page 6).

“There isn’t anything new. When there is news, I will tell you,” Rajoy said when pressed on whether or not he will ask the ECB to buy Spanish bonds. “I haven’t even had time to read Draghi’s speech yet.” The ECB president held his news conference at the same time that Merkel and Rajoy were talking to reporters in Madrid.

Just as Rajoy has been ambiguous over a possible rescue package, sources at the prime minister’s Moncloa office are also skirting the issue. But many believe that it is only a matter of time before Spain makes its formal request for aid.

Nevertheless, Rajoy wants to limit the number of conditions Brussels might demand of the Spanish government, and the prime minister had been expected to convey this message to the German chancellor and ask her to support him.

For the moment, Rajoy has bought some time, and will now wait to see how the markets react over the next few weeks to see if he can avoid having to ask for a handout.