Spain will not seek eurozone financial aid beyond an agreed rescue for its banks if more conditions than those already agreed for recapitalising lenders are attached, an EU source said Tuesday. Prime Minister Mariano Rajoy is under pressure to call in financial assistance for the Spanish state, not just its banks, but is holding off awaiting a European Commission assessment of new spending targets drawn up for 2013 and 2014.
The Spanish government said on Friday it planned savings of 102 billion euros ($125 billion) by 2014 as it stepped up efforts to bring its strained public finances back within 3.0 percent of gross domestic product, the normal EU limit. That assessment is unlikely to be complete until mid-September. Eurozone finance ministers are due to meet on September 14-15 in Cyprus, itself in dire financial straits and possibly in need of aid following talks on loans from ally Russia.
"If the Commission considers that the [Spanish] budgetary plan is satisfactory, there will not be a need for further conditions," the EU source said of Rajoy's position, referring to terms for any subsequent loans from the European Financial Stability Facility or mooted European Central Bank intervention in short-term bond markets.
In June, Spain secured a 100 billion euro credit line from the EU for its stricken banking sector but investors fear that with its borrowing costs rising, the country may in the end need a bailout. Last month, Brussels gave Spain an extra year to balance its books, saying it must bring down its public deficit to 6.3 percent of GDP this year, 4.5 percent next year and then 2.8 percent in 2014.
After Spanish borrowing costs skyrocketed in the interim, ECB chief Mario Draghi last week raised the prospect of direct intervention in the bond markets so as to bring down eurozone borrowing costs - but contingent on government support and subject to conditions. "I want to know what these measures are to see if they are adequate," Rajoy said afterwards. "Then I will take the best decision for the general interest of the Spanish people."
On Monday Spanish stocks leapt upwards, and after speaking with US President Barack Obama in a telephone call later in the day, Rajoy "stressed the efforts the government and Spaniards have undertaken to reduce the public deficit and come up with an ambitious programme of structural reforms," according to a statement from his office.