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Resourceful Spain

October 17, 2012

Spain is planning to secure a credit line from the EU's new permanent bailout fund and with it trigger bond-buying by the ECB. But Madrid is hoping to escape further austerity measures by applying a resourceful trick.

https://p.dw.com/p/16QvI
Spanish woman passing by a Santander office and holding an umbrella
Image: picture-alliance/Fabian Strate

Spainis mulling a request for financial help from the European Stability Mechanism (ESM), the EU's new permanent bailout fund for crisis-stricken members.

According to reports carried by the Wall Street Journal, the Financial Times and others, Madrid's intention would not be to get hold of bailout resources to pump into the economy, but rather trigger the European Central Bank's (ECB's) bond-buying program with a view to further lowering Spanish borrowing costs on financial markets. The ECB had previously made it abundantly clear that it would only buy up sovereign debt of countries seeking an ESM bailout.

Citing a high-ranking official from Spain's Economics Ministry, who spoke on terms of anonymity, the reports indicated Madrid could sign a memorandum of understanding with international lenders which would not force significant new austerity measures on the country.

Using a ploy

Such harsh measures would only have to be adopted if Spain actually started spending a given bailout tranche. "One could say it's a virtual credit we're talking about," the Wall Street Journal quoted its source as saying.

Madridhopes to see its borrowing costs drop to such low levels in the wake of ECB action that it would never really need a disbursement of the requested ESM credit.

Even with Spain's resourceful plan yet to be implemented, the country already managed to decrease borrowing costs for short-term bonds on Tuesday. One-year bonds logged a yield of 2.86 percent, down from almost 3 percent at the previous auction. Eighteen-month bills were sold at an interest rate of 3.07 percent, down from 3.15 percent.

hg/dr   (dpa, dapd)