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Germany Open to Spanish Precautionary Credit, Lawmakers Say

Germany's Finance Minister Wolfgang Schaeuble
Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, two senior coalition lawmakers said, signaling a reversal of Finance Minister Wolfgang Schaeuble’s public position. Photographer: Jock Fistick/Bloomberg

Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, two senior coalition lawmakers said, signaling a reversal of Finance Minister Wolfgang Schaeuble’s public position.

The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain. Schaeuble cautioned Spain against seeking aid on top of its bank bailout as recently as last month.

For Spain, where Prime Minister Mariano Rajoy’s government has said it won’t request aid until the terms are clearer, a precautionary credit line “would be a possible move,” Barthle said today in a text message. The 500 billion-euro ($650 billion) permanent rescue fund, the European Stability Mechanism, which came into force on Oct. 8, “envisages help for sectors in the economy with limited conditionality.”

The views of German lawmakers are critical because they would have to ratify any aid request under parliamentary rules. Spain has cited concern of German rejection for its reluctance so far to seek bailout funds, a condition for triggering European Central Bank help to lower borrowing costs.

‘Tail Risk’

Barthle’s comment is “important insofar as it removes a tail risk that the entire process would be subject to delay or ongoing bickering,” Michael Michaelides, an analyst at Royal Bank of Scotland Group Plc in London, said in a client note.

German bunds declined and Spanish bonds rebounded from morning losses after the comments. The yield on Spanish 10-year bonds fell 12 basis points to 5.72 percent at 4:33 p.m. in Berlin. The euro rose as much as 0.9 percent from yesterday’s close to $1.3061, while the Stoxx Europe 600 Index gained 1.1 percent.

Germany is signaling more willingness to cooperate with its European Union partners on measures to staunch the debt crisis before EU leaders meet in Brussels on Oct. 18-19. Merkel stepped up her praise of Greek reform efforts today after Schaeuble reaffirmed a commitment to a so-called banking union and one of his deputies said Germany would consider EU proposals to strengthen the monetary union.

Credit Conditions

“We’d have to look at any application that Spain made, whether for a precautionary credit or a full program,” Meister said by phone. “The applicant will have to decide.” The terms attached would vary based on the nature of the request, he said. “But one thing is clear: Whatever is requested, it won’t be without conditions.”

The prospect of Spain requesting a sovereign bailout had receded this month as Rajoy was deterred by a perceived German reluctance to endorse any request. Deputy Prime Minister Soraya Saenz de Santamaria said Oct. 11 the Spanish government had to be sure aid would “materialize” before asking for it and that it would be backed by all European countries.

Schaeuble said in an interview on Sept. 13 that any request by Spain for outside aid on top of the 100 billion-euro rescue for its banks would risk more market turmoil. “‘I’m not in the camp that says ‘take the money,’” he said. Spain “would be daft” to ask for another bailout if it didn’t need one.

To be sure, Rajoy’s government has a communication problem even as it commits to “enormous” steps to cut the budget deficit and carry out structural reforms to strengthen the country’s competitiveness, Meister said.

“My impression is that the Spanish government is going to extreme lengths in terms of consolidation and extreme lengths on structural reforms -- but up to this point have done a very good job of hiding it from the broader public,” he said.

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