Spain Insists No Need for Bailout

Many analysts were convinced that it was just a matter of time until Spain was forced to ask for a full sovereign bailout from the IMF and EU to help it out of its debt problem. However, the Spanish minister responsible for the economy, Luis de Guindos, is adamant that Spain does not need such help. Cynics will recall that such bullish statements were made by Greek, Irish and Portuguese leaders just before those nations asked for help, of course.

However, this time, it could just be correct. Spain would only be entitled to help under the ECB’s scheme to purchase sovereign debt if market rates become unrealistic and it was already in receipt of a bailout, but it has already gained enormously from the move. Investors have seen the yield on Spanish bonds fall to more reasonable (but still costly) rates once the safety net was put in place. Greece, Ireland and Portugal only needed the bailouts once they were effectively locked out of the money markets by prohibitively high interest rates. This is not currently Spain’s situation; indeed the last bond auction was over-subscribed.

Furthermore, Spain has already obtained an agreement for a bailout of the banking sector and is currently drumming up support for a “bad bank” which would hold so-called toxic assets stemming from the collapse of a property bubble which is at the heart of Spain’s problems.

Spain is already trying to reform employment legislation to free-up the hiring and firing process and has embarked on strong austerity measures which are designed to get the deficit back under control. The cuts are hugely unpopular, of course, and the nation is still struggling with a major problem of unemployment with a quarter of the workforce idle.

Time will tell if Spain does continue to resist a sovereign bailout, but the only obvious reason for it to do so now would be if the EU/IMF loan came in at below current market interest rates for the sovereign debt since the nation is already in compliance with the likely austerity measures attached to such a deal. However, it is unlikely that Spanish pride would allow such a move at this time for such a reason.