Rajoy to consider using rescue fund

Posted on August 3, 2012

Monti and Rajoy©Getty

Mariano Rajoy has for the first time opened the door to a Spanish sovereign bailout, but insisted that the European Central Bank would have to clarify the terms of any rescue before any decision could be made.

“I want to know first what these measures are, what they could mean, and if they are adequate … and then in view of the circumstances we can make one decision or another, but I have not taken any decision,” Mr Rajoy said, in his first appearance at Spain’s weekly government press conference since taking power seven months ago.

    He said he had not had any form of private conversation with Mario Draghi, president of the ECB, over the measures. “I will do what I consider to be in the general interest of Spaniards,” Mr Rajoy said.

    His comments followed Thursday’s announcement by Mr Draghi that the central bank would not begin buying government bonds, a measure used to reduce a country’s borrowing costs, unless a formal application for aid was made, which would come with unspecified conditions attached.

    The acknowledgement by Mr Rajoy that a request to the European Financial Stability Fund to buy Spanish debt is an option – a measure that the ECB made clear would come attached with economic conditions – was a reversal for the Spanish prime minister, who has until now fiercely denied that Spain would require any aid resembling a sovereign bailout.

    When asked about the possibility of Spain requesting the aid on Thursday during a joint press conference with Mario Monti, Italian prime minister, Mr Rajoy had declined to directly answer.

    Spain has already requested a €100bn European bailout of its banking system, which came with several conditions attached, such as the loss of regulatory oversight by the Bank of Spain, but the Rajoy government stressed that this was not a “full rescue”.

    Mr Rajoy is fighting to convince international investors that his programme of spending cuts, tax increases and structural reforms will be enough to reduce the country’s budget deficit, and return it to growth at the same time.

    After the acceptance of the €100bn for the banks Mr Rajoy unveiled a new €65bn austerity package, which included public sector pay cuts and an increase in sales tax – triggering waves of protests across Spain.

    Spanish 10-year bond yields, a benchmark for its borrowing costs in the capital markets, surged back over 7 per cent on Thursday after Mr Draghi disappointed investors by failing to provide a definitive plan to buy the government debt of Italy and Spain.

    The Spanish prime minister said on Friday that he had sent a letter to European leaders urging them to speed up cross-continental measures for a single regulator and mechanism to recapitalise banks.

    He also said that Spain would stand behind the debts of its 17 regional governments, of which several are struggling to refinance. One, Valencia, has already requested a central government bailout.

    “I am the prime minister of Spain, and this means I am responsible before Europe and the rest of the world for our public finances,” he said.

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