It seems clear that Spanish Prime Minister Mariano Rajoy will not request a sovereign debt bailout from the European Central Bank this year, as reported by Agence France-Presse, based on remarks made by the Prime Minister during a Spanish radio interview on Tuesday.
According to Rajoy, by Oct. 23, Spain had already completed the bond sales needed to finance its operating costs for the year, raising “a gross of 85.9 billion euros ($110 billion),” amounting to just over 95 percent of its 2012 target, as reported by AFP.
The Prime Minister’s position has set the stage for a standoff with financial markets, according to The Financial Times, which “have all but priced in a rescue request.”
A bailout would consist of the ECB purchasing Spanish bonds to drive down the country’s financing costs.
Rajoy said he would not make the request without knowing the effect a bailout would have on Spain’s borrowing costs, which had reached a level of 7.0 percent for 10-year bond yields before the ECB announced a plan last month to buy an “unlimited amount of stricken states’ bonds” if strict eurozone limits are adhered to, the news agency reported. That action brought the yields down to a still-high but more palatable 5.7 percent as of Tuesday, according to AFP.
“How far will the risk premium fall [with a rescue]? If it stays at 400 basis points and does not drop to 200 basis point, that is not the same thing,” he said, according to AFP.
The European Central Bank has repeatedly said it would not set an explicit yield target in the event of a bond-buying program, the Financial Times reported.
Nevertheless, Rajoy said he will seek a bailout if Spain’s financing costs get too high.
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