Thursday 24 August 2017

Spain may apply for aid package

eurocrisis

Elisabeth O'Leary

SPAIN'S People's Party (PP), due to form a new government by mid-December, is considering applying for international aid as one option for shoring up its finances, sources close to the party say.

The PP inherits an economy on the verge of recession, a tough 2012 public deficit target, financing costs driven to near unsustainable levels by nervous debt markets and a battered bank sector with billions of euros of troubled assets on its books.

But Tuesday's launch by the International Monetary Fund (IMF) of a credit facility for fiscally responsible countries at risk from the eurozone debt crisis gives it a potential lifeline it may wish to exploit.

"I don't believe the decision (to seek aid) has been made . . . but it is one of the options on the table because I've been asked about it. But we need more time and more information on the current state of things," one source close to the PP told the news agency Reuters.

A senior economic consultant to the PP confirmed that an application for IMF credit was just one option. In itself it would be insufficient and considered a transitory move, the consultant said.

Help under similar conditions may soon be available from the eurozone's European Financial Stability Facility (EFSF) rescue fund, which the bloc's policymakers plan to make more potent.

If extra funding is needed, either from the EFSF or the IMF, it would be politically preferable to make the decision independently and quickly, rather than being compelled by market forces at a later date.

Investors

Asked about seeking outside aid, a PP spokeswoman denied that the party was studying such a plan and said the future government had not been formed yet.

The premium investors' demand to hold Spanish over German debt stood at around 458 basis points yesterday afternoon, slightly higher than settlement on Thursday and off euro-era highs hit of over 470 hit earlier this week.

"The market perception on Spain would be enormously improved if there was a sense of resolution on the banks. They've probably missed the opportunity to do it on their own strength, but there's no point in dithering here," economist at Deutsche Bank Gilles Moec said.

"The absence of resolution on the banks outweighs the cost of calling for international help."

Earlier, Spain's treasury scrapped plans to sell a new three-year benchmark bond on December 1, replacing it with three off-the-run bonds maturing in 2015, 2016 and 2017.

Irish Independent

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