Spain’s government is considering a request for a sovereign bailout, European Economic and Monetary Affairs Commissioner Olli Rehn signaled.
“The Spanish government has an open mind on this issue, but no decision has been made,” Rehn said in a Bloomberg Television interview in New York yesterday. “We stand ready to act if there is a request.”
Rehn’s remarks came after Prime Minister Mariano Rajoy said he would ask the European Central Bank to buy Spanish bonds “if it seems reasonable,” as he moved to extend unemployment subsidies for some of the nation’s 5.7 million jobless.
Rajoy’s only criterion will be “defending the general interests of Spaniards,” the premier told reporters yesterday in Palma de Mallorca after meeting King Juan Carlos. The day before an extraordinary jobless subsidy was set to expire, Rajoy said the government will extend payments for another six months amid a jobless rate of 25 percent.
Spanish 10-year bond yields rose to a euro-era high of 7.62 percent on July 24, exceeding the threshold that prompted full sovereign bailouts in Greece, Portugal and Ireland. Yields have fallen since ECB President Mario Draghi said on Aug. 2 that the bank would buy sovereign bonds if countries applied for similar support from Europe’s rescue fund and accepted strict conditions in return.
The yield on Spain’s 10-year notes dropped 3 basis points today to 6.67 percent as of 9:45 a.m. in Madrid. Investors paid to lend Belgium money for three months yesterday as the country sold three-month bills at a so-called negative yield.
“Negative bond yields are not a healthy phenomenon,” Rehn said. “They’re not good for Germany or Finland or Belgium. They are a sign that the euro-zone economy is not doing well.”
The Finnish commissioner said the key is to restore competitive balance in the 17-nation currency union.
In Spain, the government sought a European bailout for its banks of as much as 100 billion euros ($123 billion) in June “because it seemed reasonable,” Rajoy said. “And now, if it seems reasonable, we will do the same. As is logical, until we know what we are talking about, we aren’t going to take any decisions.”
ECB committees will thrash out details of how the mechanism will work, Draghi said. The ECB would focus on shorter-dated securities as that’s within the remit of monetary policy, and would only intervene in tandem with the bailout funds to which euro-region governments contribute, he said.
Rajoy, who met Italian Prime Minister Mario Monti in Madrid as Draghi was announcing his crisis plan, will make a return visit to Rome on Sept. 20-21, he said. German Chancellor Angela Merkel will visit Madrid on Sept. 6, he said.
Markets are firmly focused on September, Jacques Cailloux, chief European economist at Nomura International Plc, said in a Bloomberg Television interview yesterday with Francine Lacqua. Germany’s supreme court will rule on the permanent rescue fund on Sept. 12, the same day the Netherlands holds elections, while also that month Greece’s international creditors will announce the country’s progress in meeting bailout targets and the ECB is due to spell out the details of Draghi’s bond-buying proposals.
“By then the critical question will be whether Italy and Spain have made that very important decision to call for help or not,” Cailloux said. Resistance is understandable “because of the political and economic costs attached,” he said. Still, “it’s very difficult to see how these countries can return to a sustainable or stable financial market environment, and so international or external help seems to be needed.”