Euro Zone Crisis

The euro zone crisis was triggered in 2009 when Greece's debts, left by its previous government, reached a record 300 billion euros, leaving the southern European economy with debt levels more than four times higher as a proportion of gross domestic product than the official euro zone cap of 60 per cent of GDP. Since the original problems were uncovered, Greece has been bailed out twice, and lenders have also had to rescue Ireland and Portugal. In the latter half of 2012. Cyprus also required a bailout.

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Spain PM again denies bailout call ’imminent’

PUBLISHED : Wednesday, 03 October, 2012, 11:56am
UPDATED : Wednesday, 03 October, 2012, 12:12pm

Spanish Prime Minister Mariano Rajoy has denied the country was planning an “imminent” demand for a sovereign bailout from the eurozone to end its financial crisis.

Market analysts said Spain might call for help within days to stabilise its public finances, but European officials cast doubt on that, saying that key players were still far from agreement.

Rajoy suggested the same when asked at a news conference whether a bailout demand by Spain was “imminent”, he replied: “No,” without elaborating late on Tuesday.

The conservative leader, known for keeping his cards close to his chest at the best of times, shrugged off media reports that his government was set to formally request a bailout as soon as this weekend.

Spain is required to make a formal demand for help in order to trigger the release of eurozone rescue funds and supportive action by the European Central Bank.

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, two moves considered likely to clear the way for a full bailout.

Rajoy passed the tough budget measures in the face of mass street protests, under pressure from European authorities to cut Spain’s deficit and restructure its economy.

He said Tuesday that Spanish regions had pledged to respect their deficit reduction targets, a crucial step towards resolving the country’s distressed finances.

“We adopted unanimously the proposition of a declaration” on reducing the regions’ deficits to 1.5 per cent of Spanish output this year and 0.7 per cent in 2013, Rajoy said after meeting the leaders of Spain’s 17 autonomous regions.

“It was not easy to reach an understanding,” he acknowledged. “But I think that today Spain is sending a good message.”

Spain’s regions, responsible for half of all state expenditure, are struggling to finance huge debts even as they axe spending on items such as health and education.

The European Union’s economic commissioner Olli Rehn said after talks with Rajoy on Monday that Spain’s reforms were “on track” and Europe “stands ready to act in case there is a request”.

But European officials told AFP on Tuesday that the other key players were far from closing in on an agreement.

They said this made it unlikely that an announcement would come by the time the Eurogroup of eurozone finance ministers meet on October 8, and maybe not even in time for a full EU summit on October 28-29.

“There is a debate over the timing,” one European diplomat said. “The question is whether it is the best solution for Spain to make its request now.”

Other diplomats said the decision was being delayed due to the reticence of countries including Germany, whose government is obliged to get approval from parliament before supporting a bailout programme.

To reduce the hazards of this process, Germany is considering presenting a Spanish demand to parliament in a package along with potential programmes for Cyprus and Greece, officials in Brussels said.

One diplomat said the idea had emerged after Germany, Finland and The Netherlands toughened their line last week on agreements for bailing out troubled banks, and that the issue could be discussed by the ministers on October 8.

Given the reticence of certain countries, “the timing is unclear, but the October summit is too soon” to expect a bailout request from Spain, said one diplomat.

Rajoy has held off a decision over the past month as the rates of return on Spain’s bonds, a key indicator of confidence that helps determine how easy it is for a country to finance itself, eased after supportive comments from the European Central Bank.

His hesitation made them creep up last week but they eased again on Tuesday.

“We do not have clear signals” about when Spain may make a bailout demand, said a European official who asked not to be identified.

“We do not think that a very convincing case can be made for a demand for aid by Spain while the country is managing to finance itself on the markets.”
 

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