Spain continues to talk with other Eurozone countries over the conditions that the country would have to meet in order to secure funds to help with its rising borrowing costs. In an exclusive report at Reuters, unnamed sources say that Spain has still not made a decision to ask for assistance from the Eurozone.
It appears that both sides are waiting for the other to make the first move. The European Central Bank has offered to help but currently requires that Spain first seek funds from the European Financial Stability Fund. Spain wants to know what conditions the EFSF would impose before it makes a formal request for funds.
Spain has apparently conceded that it will need €300 billion if its borrowing costs cannot be reduced. And that does not include a bailout of Spanish sovereign debt, which would raise the cost to other Eurozone members to the limit of the bailout funds available.
The risk premium on Spanish bonds rose to an all-time Euro-era high spread of more than 5% over German bunds, a level that Spain cannot sustain over a long period of time. A proposal to cap the allowable spread is under discussion, as is a scheme that would allow the EFSF to buy Spanish bonds on the primary market and the ECB to buy the bonds on the secondary market.
Another wrinkle is the decision due on September 12th from Germany’s Constitutional Court on the legality of using German funds to purchase foreign sovereign bonds. No decision on aid to Spain will come before that date. And that’s about all one can bet on in this seemingly endless drama.
Paul Ausick
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