As the "financial times" (FT) and the "wall street journal" (WSJ) reported on tuesday, citing a senior spanish government official, madrid is considering a kind of sham application for aid from the eu rescue fund ESM.
In reality, the fourth-largest economic power in the euro zone does not want to take any money from the fund. Madrid only wants to fulfill the condition of the ECB, according to which for the purchase of government bonds by the ECB a request for assistance from the ESM is necessary.
In brussel, experts rate the prospects for a "sham application" as slim. If spain applied for help from the ESM fund, financial experts from a "troika" in the country would have to analyze the situation. What is needed is a firm agreement ("memorandum of understanding") between madrid and the lenders on the conditions – this is not possible in a hurry. The ECB can only buy bonds if there is such an arrangement. Even in the case of a preventive aid program reserved for countries with healthy public finances, there must be a firm agreement on the loan conditions.
The official told the WSJ that if spain made a request, clearing the way for ECB intervention in the bond markets, the ten-year bond rate could fall by 1.5 percentage points as early as the following day. This would rapidly reduce the cost of refinancing spanish government debt and ultimately spain would probably not need any bailout funds at all. "You could say it’s a virtual credit line," the wall street journal quoted the official as saying.
According to the newspapers, spain wants to wait until it is certain that all countries in the euro zone will support the request before submitting a new application for assistance to the european bailout fund. An early spain application is very unlikely, said the unnamed government official. The german federal government had doubted several times recently whether a quick request for help from spain was necessary.
Despite the stalemate over further financial aid, spain received significantly more money than planned at an auction of money market paper: according to the central bank, the crisis-stricken eurozone country sold debt instruments with a total volume of 4.86 billion euros and maturities of twelve and 18 months. A maximum target of 4.5 billion euros had been set. With strong demand for short-dated securities, interest rates fell slightly.
Less than a week after the downgrading of spain’s creditworthiness, the rating agency standard & poor’s downgraded spain’s credit rating by two notches to "BBB-" poor’s (S&P) also downgraded the nation’s major banks. Among the affected institutions paid the industry giants santander and BBVA, announced S&P. Thanks to their stable foreign business, the two banks have so far coped comparatively well with the problems on the domestic market, but have recently had to put a lot of money aside because of the real estate crisis.
Last week, S&P reduced the spanish government’s credit rating by two notches from BBB+ to BBB-. As a result, the credit rating is now only one step above the so-called "ramsch level". The rating agency now also downgraded the coarse banks by two notches. It justified its step by saying that the risk for the banks depends on the situation in spain. Santander’s rating is now only "BBB" – two notches above the "ramp" level, BBVA’s rating is "BBB-. Another nine banks also lost ground.