All Of Europe Is Waiting For Spain To Request A Bailout — Here's Why It Could Be A Long Time

mariano rajoy

Photo: Wikimedia commons

For the ECB European rescue plan to be put into action, a country needs to request an outside bailout. Then after that happens, and the country has outside supervision, and a plan to reform finances, the ECB will buy unlimited amounts of short-term debt keeping yields down.That’s how it’s supposed to work.

Just one problem: No country really wants to ask for a bailout, and invite outsiders in to review their domestic policies.

It’s assumed that countries will do so (so that they don’t lose access to the markets), but there’s a catch-22, since the mere existence of this ECB backup plan has already given countries breathing room and lowered yields.

So will Spain ultimately ask for help?

Probably, but it could be a long time.

Spanish newspaper El Pais has a good explanation of what’s going on, along with a description of the split in government.

Luis de Guindos, economy minister, is, according to various government sources, the most favourable to seek help as soon as possible. Create, explain, so Spain could benefit from a mechanism never tested so far, which involve a large injection of ECB could lower the risk premium lot. Messages from the ECB, which clearly pushing Spain to go to this mechanism, also help. 

But Rajoy has given a clear mandate, which has since devoted Guindos: Negotiate to detail, have everything prepared if you have to ask for it, but by all means look for an alternative strategy. Guindos is therefore preparing everything for ransom but with the idea that the president does not want.

This negotiate-everything strategy seems consistent with what we know about PM Mario Rajoy.

Remember back in June, when Spain was negotiating for outside aide, Rajoy famously send de Guindos a text message urging him to be aggressive.

Another factor is regional electoral politics. Rajoy does not want to announce (the requisite) stiff austerity measures before regional votes so that his party may do well.

Thus it could be a long time. Rajoy wants to hold out for all sorts of reasons.

There’s a (partial) solution in Europe, but when it will be used is unclear.

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