Brussels urges Rajoy to make mind up on second bailout for Spain

Commission Vice President Joaquín Almunia warns of uncertainty impact on markets as prime minister plays waiting game

European Commission Vice President Joaquín Almunia on Monday urged the government of Prime Minister Mariano Rajoy to make its mind up soon about asking for a second bailout.

“Uncertainty is a risk,” said the Spaniard, who is also the EU commissioner for competition. “Sometimes it is difficult to take a decision and this is a very complicated situation. Any alternative has its pros and cons, but to maintain uncertainty implies a risk that the debt market or another factor increases tensions again. We have learned in the past two-and-a-half years where these tensions could lead to.”

According to government sources, Rajoy wants to delay asking for a second bailout on top of the rescue package for the country’s banks and may even eschew the option if the economy improves sufficiently to avoid the political stigma involved.

However, Economy Minister Luis de Guindos is in favor of requesting a second intervention as soon as possible to ease market pressures. He would like to see one of the European rescue funds buying Spanish debt in the primary market to trigger purchases in the secondary market by the European Central Bank (ECB).

The ECB’s decision to renew market intervention has sparked a considerable fall in Spain’s risk premium, giving Rajoy a certain amount of leeway in which to make his mind up. The spread between the yields of the 10-year government bond was up 12 basis points at 432 on Monday, compared with a euro-era high of about 650 in July.

Economy Minister Luis de Guindos is in favor of requesting a second intervention as soon as possible to ease market pressures

Rajoy has asked De Guindos to prepare all the groundwork for a bailout with the aim of avoiding having any new conditions attached to it, other than those that apply to the loan to recapitalize the Spanish banking system.

Almunia said it is likely the Commission will be more strict on the timetable for the fulfillment of the conditions already agreed with Madrid.

Some of Spain’s European partners have called on Rajoy not to ask for a second bailout if it is not needed. German Finance Minister Wolfgang Schäuble has discouraged Spain from doing so. “I’m not in the camp that says: ‘Take the money,’” Schäuble said last Friday, adding it “would be daft” for Spain to seek further funding if it did not need it.

The Spanish Treasury needs to issue some 80 billion euros in what remains of the year to cover maturities and funding needs.

In what will be its first debt auction since the ECB unveiled its plan to ease the pressure on financially stressed euro-zone countries, the Treasury is looking to sell between 3.5 and four billion euros in 12- and 18-month bills. That will be followed by a tender for three and 10-year bonds in which the Treasury is looking to raise a similar amount as in the T-bill auction.

There will also be a private placement of three billion euros on Friday, the proceeds of which will go to the Regional Liquidity Fund (FLA), which is being set up by the central government to help out the country’s cash-strapped regions.


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