Spain on brink of requesting debt bailout
MADRID: Spain may seek a sovereign bailout within days, financial analysts predicted yesterday, after the eurozone’s fourth-largest economy revealed a soaring debt outlook.
As signs gathered that Spain was entering the end-game, the European Union economics chief, Olli Rehn, opened talks in Madrid with Economy Minister Luis de Guindos.
In the past week, Spain has unveiled an austerity budget for 2013 and revealed a lower-than-expected price tag for saving its banking system, both items considered essential homework for a bailout.
Meanwhile the financial and economic crisis is deepening.
Spain’s government revealed on Saturday that the cost of a banking bailout will send its debt soaring to 85.3 percent of gross domestic product in 2012 and 90.5 percent next year.
The Bank of Spain said last week the recession deepened in the third quarter. And Madrid’s forecast for an economic contraction of just 0.5 percent next year has been met with deep scepticism on the market.
Moody’s Investors Service is set to announce within days whether it will downgrade Spain’s debt to junk bond status.
The accumulating crises are raising expectations of a Spanish bailout, which will be in the minds of eurozone finance ministers at a meeting on October 8 and again for a European Union summit on October 18 and 19.
The rising Spanish public debt, in particular, is a worry, said a report by brokerage Link Securities.
“This strong increase in the debt could provoke a cut in the Spanish sovereign rating to non-investment grade by Moody’s, which is feared by investors to happen this week,” Link Securities said.
“That would make it more difficult for Spain to finance itself on the markets and, we believe, would accelerate the request for a bailout, a request that the markets have been expecting for weeks believing that it is crucial for the stabilisation of the euro zone because Spain would act as a fire break for other countries that have serious fiscal imbalances such as Italy and even France.”
If Moody’s cuts Spain’s debt to junk bond status it would be “almost impossible” for the country to delay any further a request for a sovereign bailout, Link Securities said.
Spain’s 2013 budget, presented to parliament on Saturday with € 39 billion in austerity measures was based on an optimistic growth outlook but contained spending cuts that were “tough and real”, said Holger Schmieding, analyst at Germany’s Berenberg Bank. He noted pressure from Germany for Spain to pick up the tab for its own banking rescue even after a joint euro-zone banking supervision regime is established. “This has made it even more likely that Spain will request support within the next two weeks.” – Sapa-AFP