Former European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo said Spain may escape a bailout, as the country has already confounded expectations by continuing to raise its own financing this year.
“It is by no means excluded that a bailout will not be requested, if a sequence of good news is produced in terms of the deficit and other things,” Gonzalez-Paramo, 54, said in an interview with Bloomberg Television in London yesterday.
Prime Minister Mariano Rajoy continues to postpone a decision on whether to seek a bailout that would allow the ECB to buy Spanish debt. As the country’s bond yields have fallen more than 2 percentage points from a record 7.75 percent in July, the Treasury has already sold all the bonds slated for sale this year and is building a buffer for 2013.
“If you had asked in July whether Spain would be in the situation it is now in terms of funding, you would never have bet that this would be the case, but you see what you see,” Gonzalez-Paramo, a Spaniard who now teaches at IESE business school in Madrid, said.
The comments mark a shift from September, when Gonzalez-Paramo said that if a rescue were necessary the government should ask for it sooner rather than later. If you need a bailout “better to do it now than when you are up against the wall because the risk premium has run out of control,” he said in an interview on Onda Cero on Sept. 18.
The benchmark 10-year bond yield has fallen 55 basis points since then. The yield, which reached an eight-month low yesterday, traded at 5.341 percent at 9:47 a.m. in Madrid, compared with 5.339 percent yesterday.
Rajoy, who first opened the door to a bailout in August when ECB President Mario Draghi set out the bond-buying proposal, says he needs to know how much borrowing costs would fall if he did seek help. That’s not possible, said Gonzalez-Paramo, who served on the ECB’s executive board for eight years until May.
“What is the right amount at a given point in time is for the ECB to assess, so they cannot pre-commit,” he said. Still, it’s “obvious a country with Spain’s fundamentals shouldn’t be paying 6 percent for 10 years,” he said.
Spanish data on exports are showing positive signs for the euro region’s fourth-largest economy and foreign sales will be the nation’s way out of the crisis, he said. Non-resident investors are also coming back into Spanish markets, he said, helping push down borrowing costs.
In the case of a bailout, the ECB would not necessarily have to buy bonds to bring down borrowing costs, Gonzalez-Paramo said.
“It’s an expectations game, the same game we have seen since July: the expectation that you could request a bailout and the ECB could intervene has kept funding costs down,” he said. “Ideally we should see no intervention.”