Tags: Spain | Bailout | Request | rescue

Spain Prime Minister Rajoy: Bailout Request Isn't Imminent

Tuesday, 02 Oct 2012 12:56 PM

 

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Spanish Prime Minister Mariano Rajoy said on Tuesday a request for European aid was not imminent following a report the country could apply for help as soon as this weekend.

Rajoy made the comments after meeting in Madrid with the 17 leaders of Spain's regions.

European officials told Reuters late on Monday that Spain was ready as early as next weekend to ask the eurozone and the European Central Bank to start buying its bonds, but Germany had signaled it should hold off.

"If a news agency reports that we'll ask for aid this weekend, there can only be two explanations; that the agency is right, and knows more than I do, which is possible, or that they are not right," Rajoy said with a smile when asked about the Reuters' report.

"But, if it helps, and you accept that what I say is more important than this leak, I say no (we won't ask for aid this weekend.)"

Spain is the current focus of investor attention as Rajoy struggles to deflate one of the eurozone's largest public deficits while the country sinks deeper into its second recession in three years.

The premium Spain pays on its benchmark 10-year bond eased on Tuesday as investors focused on signs Madrid may be open to asking for help. The Treasury faces a new test of investor appetite on Thursday when it issues bonds maturing 2014, 2015 and 2017.

Madrid announced further belt-tightening measures for its 2013 budget on Thursday, as well saying it would detail some 43 structural reforms over the next six months.

The number of jobless in the country rose further in September as services sector layoffs accelerated at the end of a busy summer tourist season, suggesting one in four of the country's workforce is now unemployed.

Tuesday's meeting between Rajoy and the country's regions reached an accord on a fiscal consolidation path, though didn't give any specific details on how the local authorities would balance their public accounts.

The central and regional governments would discuss at a future date how the country's deficit would be divided.

This year, the central government's public deficit target is set at 4.5 percent of gross domestic product while the regions must reduce their own shortfall to 1.5 percent of GDP. By 2014 the central government will aim for a target of 2.7 percent while the regions will target 0.1 percent of GDP.

Shut out of international debt markets and facing debt redemptions worth almost 16 billion euros ($20.7 billion) before the end of the year, five of the more indebted regions have asked for help from an 18 billion-euro fund set up by the central government.

ONE NOTCH FROM JUNK

As investors wait for news on Spain's decision on the European bailout, ratings agency Moody's said on Monday it will publish a review on the country's sovereign debt, just one notch above junk grade, sometime this month.

The agency was due to report on Spain before the end of September, but a Moody's spokeswoman told Reuters the review was ongoing.

"Moody's review of Spain's rating is continuing to assess a number of factors, including Spanish banks' capital needs, the nature and size of support mechanisms, the recently released 2013 budget plan and the consequences for the euro area's crisis management framework of the further advancement of a banking union," the spokeswoman said.

Moody's last cut Spain in June 2012 from A3 to Baa3.

If the agency decides to cut the rating by one or more notches, it would remove Spain's investment grade, making it only the second of the world's top 12 economies to have lost its investment grade.

Standard and Poor's currently has a BBB+ rating on Spain's sovereign, three notches above junk. Fitch rates Spain two notches above junk, at BBB.

Standard & Poor's ratings chief for Europe, Africa and the Middle East said earlier in September that the agency was unlikely to cut Spain to junk in the near future because of the ECB plan to support the country's debt prices.

The credit rating firm DBRS is in no rush to change its Spanish rating despite the country's worsening economy because stabilization measures such as the European Central Bank's new bond-buying program could start at any point.

© 2014 Thomson/Reuters. All rights reserved.

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