Spain told eurozone finance ministers on Friday it will set clear deadlines for structural reforms by the end of the month, in a move European diplomats said would pave the way for an aid request before long to help it tackle its debt pile.
Madrid’s borrowing costs have fallen sharply since the European Central Bank (ECB) said it was ready to buy Spanish bonds but big borrowing needs before the year-end and a deepening recession mean most analysts and policymakers believe it is only a matter of time before it would require help.
“We will adopt a new set of reforms to boost growth ... It will be in line with the recommendations of the European Commission,” Spanish Economy Minister Luis de Guindos told reporters after meeting his peers in Cyprus.
Euro zone policymakers have said that to get aid, Spain would need to adhere to strict conditions, which usually entail detailed reforms and concrete deadlines, rather than vague plans.
Madrid’s move is therefore seen by EU diplomats as a precursor to a request that pre-empts any eurozone calls for further reforms in an attempt to limit a political backlash at home, although de Guindos insisted the package was unrelated to any bailout terms.
“This is a blueprint for a fiscal and structural program, this is a blueprint for a way forward,” one senior EU diplomat said on condition of anonymity.
“Yes, we’re moving towards a bailout but now a decision has to be taken by [Spanish Prime Minister Mariano] Rajoy. And right now, it’s hard to know his intentions,” the diplomat added.
The new reform program is to be made public along with next year’s budget on Sept. 28, the day Madrid is to publish the results of a final stress test of the country’s banking sector.
A second official said the measures, if credible, would give a clear indication that Spain was willing to seek aid.
“They are discussing it with the European Commission, which gave rather positive feedback. If the measures are credible, the way is clear,” the source said.
Both EU officials said the most likely form of help Spain could seek was a precautionary credit line from the European Stability Mechanism (ESM) rescue fund.
Such a credit line would allow the ESM to buy Spanish bonds at auctions, leaving the ECB free to intervene on the secondary market. The euro zone could barely afford a full bailout of the sort given to Greece, Portugal and Ireland.
“No one wants Spain to ask for a full bailout, that wasn’t even discussed,” French Finance Minister Pierre Moscovici said.
Euro zone officials have speculated Spain could apply in time for the next meeting of euro zone finance ministers on Oct. 8.
Madrid has so far resisted austerity conditions that go beyond the EU policy recommendations it is already implementing, while north European creditors led by Germany are adamant that any aid would come on tougher terms.
ECB President Mario Draghi, who attended the Nicosia talks, stressed any bond-buying would require strict conditionality and Executive Board member Joerg Asmussen noted there was nothing automatic about ECB starting on Spanish bond purchases, even once Madrid were to formally apply for ESM help.
However, one diplomatic source said that there were teleconferences almost every day among the members of the committee working on the bond-buying scheme.