The European Central Bank (ECB) is putting the pressure on Spain, but it hopes the country won?t suffocate. In turn, the Spanish government is increasing its pressure on Draghi and the ECB in hopes that the monetary institution resumes buying Spanish treasuries. According to sources close to Rajoy and his cabinet, the perception is that Germany approves the speedy reforms that Rajoy has implemented during the past several weeks.
So much so that it would even think about buying Spanish debt again, something that it has hardly done since February. In fact, the ECB has not bought a single euro of Spanish debt for four weeks straight and eight of the last nine weeks. The Spanish government thinks that it is doing an adequate job with reforms and other obligations imposed by the EU. And it isn't hiding its frustration with how the markets have responded the past several days.
Sources close to the Prime Minister assure that at Moncloa they are talking about the possibility of abandoning the euro. If that were to happen, our country would not receive bailout funds sourced from European financial institutions, which means the ECB would not decide to buy more Spanish debt.
Some think that this reaction is directly related to the utter coldness that EU authorities have shown toward Spain during the past several weeks. Authorities have not shown the least sign of approval of Spain's 2012 national budget or the agenda of reforms enacted by Prime Minister Rajoy. In fact, quite the opposite has happened. Just a few hours after Minister Cristóbal Montoro announced a 27.3 billion euro cutback that is going to be applied this year, the EU spokesperson for Economic Affairs, Amadeu Altafaj, showed his skepticism about the time span of Spain's cuts and reforms. Then he asked for more information from the Rajoy administration.
Draghi, for his part, made it clear last Thursday at the end of a meeting during which the ECB kept interest rates at one percent. In the press conference after the meeting, Draghi said that "what the markets are demanding, what they are waiting for, are reforms." To whom was the Italian banker alluding? To the countries with the most exposure. But he mentioned only one by name: "And I'm not talking about Spain alone," he stressed.
