EU seeking to rescue Spain without embarrassment of Irish-style bailout
EUROPEAN officials are struggling to devise a bailout programme for Spain that will shore up the banking sector but spare the country the indignity of an Irish-style bailout with detailed conditions and regular inspections.
Officials hope that softer rules could make the reluctant Spanish government more willing to accept international help. Spain said yesterday that it would decide within a fortnight whether to accept aid.
Prime Minister Mariano Rajoy has already introduced austerity measures similar to those agreed by Ireland, Greece and Portugal, which may allow European officials to hold off on demands for a detailed memorandum of understanding.
Sources in Berlin and Brussels who are familiar with discussions say lawyers are examining the fine print of European treaties to see how Madrid could get money from the eurozone's rescue funds without entering the full bailout programme.
German officials said the aim was to avoid the embarrassment of Spain having to adopt new economic reforms imposed from outside and monitored by European and International Monetary Fund inspectors.
Sources in Berlin said the German Finance Ministry believed the eurozone's permanent rescue fund, the €500bn European Stability Mechanism, which is due to enter into force next month, could lend directly to Spain's bank rescue fund. However, EU lawyers are not convinced that this would be legally possible.
One advantage would be that smaller eurozone countries, such as the Netherlands or Finland, could not hold up a loan since approval by the ESM board does not require unanimity.
Spain, the eurozone's fourth-biggest economy, admitted on Tuesday that it was effectively losing access to credit markets due to prohibitive borrowing costs and appealed to European partners to help revive its banks.
It is due to auction a small amount of bonds today.
Spanish Economy Minister Luis de Guindos said after talks at the European Commission yesterday that there were no immediate plans to apply for a bailout.
He added that Spain would await the results of an IMF report and an independent audit of the banking sector, both due this month, before taking decisions on how to recapitalise the banks.
ECB president Mario Draghi said financial markets were not wrong to be worried about the future of the eurozone but that they underestimated the political commitment backing the single currency.
He welcomed EU leaders' agreement to step up work on a long-term vision for a full economic and monetary union. (Additional reporting, Reuters)