Illuminating working session

Both Angela Merkel in Madrid and Mario Draghi in Frankfurt reiterated on Thursday that the euro is an irreversible project, and gave their support to the reforms introduced by the Spanish government. The president of the European Central Bank (ECB) unveiled details of a new bond-purchasing program that he has initiated. Its goal is to push down the yields in the secondary market of the public debt of the economies that are most threatened — the most prominent being Spain and Italy — to levels more in line with their economic fundamentals, and in support of a euro zone where there should be no such differences in interest rates. After meeting with Prime Minister Rajoy, the German chancellor, for her part, gave her support to the efforts Spain is undertaking, giving breathing space to the government at a time when it will eventually file its petition for financial assistance. The market reaction was unmistakably favorable.

If the government wants support from the European Union to stop its borrowing costs from being prohibitively high it is necessary that it officially acknowledges the need for a rescue and asks for “a precautionary bailout.” This is the necessary requirement for the ECB to put in place its new mechanism. It will entail strict European supervision similar to the rescue package for the Spanish banking system. Once the petition is made and the conditions are accepted, the ECB will buy unlimited quantities of Spanish public debt with maturities of less than three years in the secondary market, and the European rescue fund will also be used to purchase limited quantities in the primary market.

With this decision, the ECB has complied with its commitment set forth by its president to take “special measures” to neutralize the euro’s “risk of reversibility.” He outlined all types of possible intervention, albeit to be used within limited time periods and depending on the economic fundamentals of each country that solicits aid. But he has emphasized that the rescue funds, the current one and its successor, will be used in the primary markets. This way he is not violating the terms of his mandate, and puts at ease the objections by some representatives of European central banks, most notably the Bundesbank.

It is now up to the government to ask for this help under a new line of credit. It should be done quickly and with efficient negotiations concerning the conditions. The government should not play with euphemisms by trying to disguise what is indeed a new bailout, regardless of whether it is precautionary or soft. Labels right now are less important than the fragility of public finances, which also have a great adverse impact on families and businesses. In the negotiations, Spain should win Germany’s support.

It would also be positive to extend this realistic outlook and open a dialogue with the opposition. To begin with, it would be a solid step if the Socialists were to abandon their position of being opposed to a bailout. This is all about making decisions of great importance; not only because it will affect the welfare of all Spaniards, but also because it will place obligations on Spain that will last more than one elected term.