Tags: Spain | Rajoy | Rescue | europe

Spain's Rajoy Studies Rescue, Says May Not Be Necessary

Wednesday, 12 September 2012 07:52 AM

Spain continues to study the price it will have to pay for seeking help from the European Central Bank's bond-buying program but improved market conditions may make aid unnecessary, Prime Minister Mariano Rajoy said on Wednesday.

"I don't know if Spain needs to ask for it," Rajoy told parliament in a debate session, referring to an international rescue for Spain.

Yields on Spanish bonds have fallen dramatically, to five-month lows, since the ECB agreed last week to launch a new bond-buying program to reduce struggling eurozone countries' borrowing costs provided they first request assistance from the eurozone's rescue fund and abide by strict conditions.

Earlier, in an interview with Finnish newspapers, Rajoy said he had no objection to the International Monetary Fund monitoring Spanish compliance with the conditions for any assistance although he has also insisted that no fresh demands should be made on Spain in terms of cutting debt.

"The IMF is already monitoring our economy," Helsingin Sanomat quoted Rajoy as saying during a visit to Madrid by Finnish Prime Minister Jyrki Katainen on Tuesday.

Spain, which has already secured European rescue funds of up to 100 billion euros ($128.5 billion) for its troubled banks, is also struggling with its fiscal deficit, indebted regions and pressure from credit rating agencies.

"In addition to growth, the only option I am considering is using the central bank's announced mechanism," Rajoy said, according to Helsingin Sanomat.

"It is completely ruled out that we would ask for a bailout for the whole country," he told business daily Kauppalehti.

His comments indicated Spain may apply for a precautionary assistance program under which the eurozone's rescue funds could buy Spanish bonds as they are auctioned without the country being taken off the credit markets, rather than the kind of full sovereign bailout granted to Greece, Portugal and Ireland.

The conditions on a precautionary program would be lighter, and the cost to the rescue funds of supporting the eurozone's No. 4 economy would be lower.

Germany is pushing for tougher conditionality than merely implementing the existing European recommendations that Spain slash its public deficit and reform its economy to make it more competitive.

Even in a "bailout-lite scenario," an IMF role in helping frame conditions and supervise compliance would be more intrusive than its current level of involvement.

Rajoy repeated that his government would carefully study the strings attached to the ECB's bond program, but added he would not be told what to do with the budget.

"I am prepared to decrease the deficit. But others cannot decide how it will be reduced," he said.

Rajoy said in a television interview on Monday he would not touch the pension system, although many economists believe reducing unsustainable pension costs would be a likely condition for any assistance program.

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