Over two weeks ago the head of Germany's central bank, Jens Weidmann, suggested that Spain's government ask for a bailout. On Tuesday of last week, the European Commission's Vice President and Competition Commissioner Joaquín Almunia seconded the suggestion, and now it looks like Spain will act on it.
The price tag has been set at 300 billion euros. This amount will allow Spain to face upcoming debt payments (28 billion euros are due in October) and will doubtless play a huge role in lowering the country's risk premium and increasing the country's ability to access credit markets. Hopefully, Spain will soon be able to issue debt at around 2-2.5%, which is substantially lower than recent levels that went beyond 7%.
The proposal from Germany would definitely obviate a BCE intervention, which was the solution that Mariano Rajoy and his government have been fighting tooth and nail for. It will also take some pressure off as Spain undertakes regional governments and spending reforms. Is it a good choice to give the green light to a bailout? Many Spanish citizens are ready to support the bailout plan, which could finally put a stop to the agony that their economy is experiencing.
Ultimately, the decision depends on what conditions the EU puts on Spain. Whether or not a bailout happens, these conditions will be strict. The government needs to act quickly and finally accept that the ECB won't come to the rescue. Based on a briefing of the meeting between Spain's Minister of the Economy Luis de Guindos and Germany's Minister of Finance Wolfgang Schäuble, leaders are in fact looking away from the ECB and toward a bailout as the safest and swiftest path toward the type of fiscal and bank unity that Angela Merkel wants to see.
