Spain PM says no decision taken on seeking bailout

MADRID (AP) ? Spanish Prime Minister Mariano Rajoy said Friday he would only consider asking for financial aid for his country once the European Central bank has fleshed out its crisis-fighting plans for buying government bonds. This is the closest the leader has come to admitting he is considering a bailout after months of denials.

Speaking to reporters, Rajoy urged Europe's leaders and the ECB to speed up the introduction of key reforms to fight the debt crisis and strengthen the struggling banking sector.

"I haven't made a decision (on a bailout) yet," Rajoy said after a cabinet meeting. "I want to know what the unconventional measures proposed by the ECB are. We do not know what is being proposed."

Rajoy was speaking a day after the ECB warned it would only help lower a country's borrowing costs if that country's government applied for rescue aid from the rescue funds set up by the 17 countries that use the euro.

The ECB's announcement initially sent Spain's borrowing costs spiraling again as investors expressed their disappointment and continuing concern over whether Spain can manage its finances and pay its debts.

Spain borrowing costs have risen sharply for all bond types in recent months as the uncertainty over the whether the country can afford to contain the problems in its banking sector and indebted regional governments has continues unabated.

The interest rate, or yield, on Spain's benchmark 10-year bond was at 6.82 percent just after Rajoy spoke - dangerously close to the 7 percent level, which many market-watchers consider unsustainable in the long term. Such rates could likely push Spain to seek a bailout, deepening Europe's financial woes and sending repercussions to economies beyond the continent.

The yield had dropped to 6.5 percent last week after ECB chief Mario Draghi first intimated he would apply measures that would help ease the pressure on borrowing costs. By comparison, the rate demanded by investors for Germany's more trusted 10-year bond was 1.34 percent.

Rajoy also told reporters that he had sent a letter to European Council President Herman Van Rompuy and his European Commission counterpart, Jose Manuel Durao Barroso, urging for recent proposals for greater EU banking union to be approved in December.

"If we really want to speak of a political project, a project for the cohabitation of millions of citizens, disparities in financing of this caliber, that does not happen in any currency zone in the world," Rajoy told reporters.

"It is impossible, so it is important that this matter is resolved."

Spain's benchmark Ibex 35 stock index fell after opening but rallied upward in the afternoon to claw back the losses it suffered after Thursday's ECB's announcement.

Spain has been already granted a loan of up to ?100 billion ($123 billion) for banks laden down with toxic assets following the bursting of a real estate bubble in 2008. Progress on EU banking and fiscal unity could help it get that money passed straight to the banks soon and not form part of its already heavy sovereign debt burden.

Greece, Ireland, Portugal and Cyprus have already sought bailouts but a Spanish sovereign rescue package would seriously test the European Union's coffers as it is the fourth largest economy of the 17 nations using the single euro currency.

But some analysts think it's only a matter of time.

"It looks quite clear that we are finally going to need some kind of aid," said Tomas Gallo, director of ATL Capital Investment Company in Madrid.

"The tug-o-war is that we want it be given to us without asking specifically for it, and those who will give it to us want us to ask for it, for us to compromise, to follow some measures, a commitment that we have still not acquired. But this will finally happen," he said.

In its favor, the country has already managed to place 72 percent of its targeted ?86 billion ($106 billion) in medium- and long-term debt for this year. It has minor T-bill auctions Aug. 21 and Aug. 24 while its next bond sale is not until Sept. 6.

The Treasury, however, must pay ?53 billion ($65 billion) in bond redemptions before the end of the year, including a stiff ?27 billion ($33 billion) in October.

Spain is in its second recession in three years with an unemployment rate of nearly 25 percent.

But many of its 17 regional governments are now starting to run out of money while austerity measures and labor reforms brought in to try to calm financial markets and appease EU partners are stifling the economy.

Strikes and protests have become almost a daily feature. On Friday, some 500 trains were canceled as rail workers staged a one-day strike to protest a proposed restructuring of the sector. The stoppage came at the beginning of one of Spain's biggest holiday months.

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Alicia Lopez in Madrid and Barry Hatton in Lisbon contributed to this story.

Source: http://news.yahoo.com/spain-pm-says-no-decision-taken-seeking-bailout-153436529--finance.html

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