Spanish Prime Minister Seeks European Backing as Access Narrows

Rajoy Seeks European Backing as Spain’s Access Narrows
29 May 2012, by Emma Ross-Thomas and Charles Penty (Bloomberg)
http://www.bloomberg.com/news/2012-05-28/rajoy-seeks-european-backing-as-spain-s-access-narrows.html

Excerpt:

Spanish Prime Minister Mariano Rajoy called for a show of force from European authorities as his government sought ways to avoid tapping markets to fund the bailout of the nation’s third-biggest lender.

“Europe has to dissipate any doubts about the euro,” the premier told a hastily called news conference in Madrid yesterday.

It “must affirm that the euro is an irreversible project and act in consequence,” he said.

Spain is trying to shore up its banks and help cash- strapped regions while its own borrowing costs compared with Germany’s are the highest since the creation of the euro.

As Spain’s narrowing market access depends on domestic lenders financed by the European Central Bank, the government is considering using public-debt securities rather than cash to fund the €19 billion ($24 billion) bailout of BFA-Bankia.

“The truth is that Spain can’t do this on its own -- it can’t afford to bail out or recapitalize its banking system,” Olly Burrows, a credit analyst at Rabobank International in London, said by phone.

“Spain itself doesn’t need a bailout -- this has always been about the Spanish banks, but it’s also true that you can’t borrow money from someone who doesn’t have it.”

Rajoy repeated yesterday that he wouldn’t seek a European rescue for the nation’s banks.

Still, he said the European Stability Mechanism, which is due to start operating as a permanent rescue fund in July, should be able to recapitalize struggling banks directly, bypassing national governments.