EU paymaster Germany said on Friday that Spain does not need a European bailout, dousing financial market expectations that Madrid will gain early relief from European Central Bank bond-buying.
German Finance Minister Wolfgang Schaeuble’s comment, contrasting with pressure from France for Madrid to avail itself of ECB help, seemed aimed at deterring Spanish Prime Minister Mariano Rajoy from applying for assistance soon.
“Spain needs no programme because it is doing the right thing and will be successful,” Mr. Schaeuble told the Foreign Press Association in Berlin, saying he was in full agreement with the Spanish government.
“What Spain needs is the confidence of the financial markets and that is where Spain has real problems,” he added.
In Madrid, Spain’s deputy prime minister denied a Reuters report that the government is considering freezing pensions as it races to cut spending and meet likely conditions for any rescue package.
“The prime minister has said publicly that the first thing he did when taking power was bring pensions up to date and that should be respected ... in his exact words, it would be the last thing he would touch,” Soraya Saenz de Santamaria told reporters.
Reuters also quoted sources with knowledge of the matter as saying Spain was considering speeding up the raising of the retirement age to 67 from 65.
The government is committed to a 1 per cent increase in pensions and a 3 per cent regular inflation catch-up by the end of the year. Suspending inflation indexation might enable Mr. Rajoy to argue he had not “touched” pensions while saving money in real terms.
Spain’s borrowing costs have begun to creep up again as government officials and euro zone partners have sent confusing signals over whether Madrid would apply for and receive a precautionary credit line.
The country faces a €27.5-billion ($28.19-billion U.S.) debt redemption hump in late October, but EU officials said they did not expect Mr. Rajoy to submit an application before regional elections in his home region of Galicia on Oct. 21 – too late to receive ECB backing by that deadline.
The ECB has conditioned its willingness to buy shorter-term bonds in the secondary market on vulnerable countries applying for assistance, negotiating a memorandum of understanding and accepting strict conditionality and international supervision.
Italy may soon come into the frame too.
Late on Thursday, it produced some dismal forecasts, predicting the economy would shrink this year by 2.4 per cent, twice as much as the previous projection of a 1.2 per cent drop, made in April. It also hiked its forecast for the 2012 budget deficit to 2.6 per cent from 1.7 per cent.
The latest turn of events demonstrates that the period of calm the ECB has bought the euro zone by promising to intervene to lower borrowing costs may be short-lived unless it can back up its words with actions.
Credit ratings agency Moody’s, which has said it would welcome a Spanish application for assistance, is due to conclude by the end of the month a review of whether to downgrade Spanish sovereign debt to junk status.
Mr. Schaeuble said Spain had made clear it would not need the full €100-billion which euro zone countries have already agreed to lend it to recapitalise ailing banks hit by the collapse of a real estate bubble and a deep recession.
The European Commission said on Thursday that any money left over could not be diverted for other purposes.
Mr. Rajoy is keen to avoid the political stigma of a sovereign bailout even though Madrid would not need to be taken off the international credit markets like Greece, Portugal and Spain.
Officials who attended a euro zone finance ministers meeting in Cyprus last weekend said Mr. Schaeuble had told colleagues it would be hard to persuade the German parliament to approve another rescue programme for Spain so soon after the bank aid.
Madrid is due to approve a tough 2013 budget next week, set out a timetable for implementing economic reforms announced in July and publish the results of a detailed audit of Spanish banks’ recapitalisation needs.
Mr. Schaeuble also said nobody in the euro zone wanted Greece to leave the currency bloc but Athens had to demonstrate it was sticking to the terms of a second international rescue package.