German members on the ECB board, including Bundesbank boss Jens Weidmann are vehemently opposed to the central bank buying up the bonds of debt-laden eurozone countries, and the ECB has not made any such purchases since March.
But investors worry that without ECB intervention, Spain’s borrowing costs will remain prohibitive, and the country will have to resort to a bailout. According to the El Economista report, Madrid is mulling whether it should request a “bailout with flexible conditions”. This would include a temporary line of credit of up to €100 billion (which would cover the Spanish government’s financial needs in 2012, including repaying the €28 billion in debts that mature in October and providing assistance to debt-strapped Spanish regional governments), and which would come on top of the €100 billion earmarked for the Spanish banks.
The report, which quoted unnamed government sources, said that Madrid is looking at alternatives to a classic bailout, which would be too expensive given the country is the fourth largest in the eurozone. “What’s at stake is avoiding an imminent financial melt-down” the report emphasised.
Meanwhile, the former head of the Spanish central bank Miguel Angel Fernandez Ordonez, blasted the Spanish government for its handling of the country’s banking crisis.
“In the first half of the year we have witnessed a collapse in confidence in Spain and its financial system to levels unimaginable seven months ago,” he told a committee of Spanish deputies. “Now we are not only worse than Italy, but worse than Ireland, a country that has been rescued.”
He added that “many things were done badly, and in particular, many things which should have been done to resolve the banking problem were not done”.
This article first appeared on Business Spectator.
