May 24, 2013
Euro zone officials urge Spain to clarify aid
Euro zone finance ministers pressed Spain today to clarify whether it will seek financial support after the announcement of the European Central Bank's new bond-buying programme brought Madrid's borrowing costs sharply lower.
Spanish Finance Minister Luis de Guindos deflected questions about a possible aid application on arriving for talks in Cyprus, saying they would discuss in general terms the conditions for ECB intervention in the markets.
"I'd like them to set out their position because it hasn't been clear over the summer what their position is," Irish Finance Minister Michael Noonan told reporters, reflecting concern among several euro zone countries that uncertainty over Spain is holding back a recovery from the bloc's debt crisis.
The ECB has made clear that a Spanish request for help from the euro zone's bailout fund, and the negotiation of strict policy conditions and monitoring, is essential to trigger its bond-buying intervention in the secondary market.
Madrid is resisting any austerity conditions that go beyond European Commission recommendations it is already implementing, while north European creditors led by Germany are adamant that any aid would come with tough conditions.
"It is much more important to meet our public deficit targets and comply with our programme of reform than a potential rescue," De Guindos told reporters when asked about conditions for any financial support.
"The fundamental question here is to establish the elements of what could be an intervention of the ECB on the secondary market. I believe that's what we will do today, although it will be in a generic way and not directly in relation to Spain."
For the first time since the start of the year, the ministers' talks will take place at a time when market pressure for immediate action to solve the sovereign debt crisis is easing, rather than mounting.
The ECB's announcement that it could buy unlimited amounts of Spanish bonds, should it apply for help from the euro zone bailout fund, brought Spanish 10-year bond yields down from 7.64 percent on July 24 to 5.62 percent on Thursday.
Italian yields have fallen to around 5 percent and the euro rose above $1.30 after the US Federal Reserve announced a new programme of asset purchases to support the economy and fight unemployment.
That increases the temptation for Spain, and EU paymaster Germany, to try to tough it out without an assistance programme that would be politically unpopular in both Madrid and Berlin. Each time market stress has eased in the nearly three-year-old crisis, German leaders have said they see no urgent need to act.
ECB President Mario Draghi said in a German newspaper interview that the central bank's policy decision in itself was having beneficial effects.
"There have already been positive results," he was quoted as saying in today's Sueddeutsche Zeitung. "The announcement of the facility has contributed to raising confidence in the euro area, and in the euro across the world.
"Fund managers are bringing their money back to Europe. This is good for the euro area economy," Draghi said.
German Finance Minister Wolfgang Schaeuble launched a counter-attack against critics of the bond-buying decision, including the country's influential central bank, saying German worries of unlimited exposure to euro zone bailouts or the ECB printing money to finance debt-laden governments are unfounded.
"The ECB will not make any decisions that lead to the indirect financing of states. That would violate their mandate and they will not do it," he said in a radio interview broadcast today. "I have confidence in the ECB."
Spain is reluctant to ask for help because Prime Minister Mariano Rajoy fears a political backlash at home, but he may eventually have no other choice given Madrid's borrowing needs.
"After the ECB announcements, there is bigger pressure on the Spaniards to apply," one euro zone official said of the talks in Cyprus, itself a candidate for a bailout.
Spain would prefer to apply together with Italy rather than alone, to dilute the impression of having mismanaged its public finances, he added.