Spain is considering a request for a credit line
from the European Union's new bailout fund to lower its borrowing
costs, several newspapers reported Tuesday.
Pressure has been piling up on Spain to seek help from the new European Stability Mechanism (ESM) to trigger bond-buying by the European Central Bank.
With Spain's borrowing costs now relatively stable, Prime Minister Mariano Rajoy's government has hesitated to make the move.
The government is now considering applying for a credit line that would be made available only if the money was needed, according to the Wall Street Journal, the Financial Times and the Spanish economic daily Expansion, which quoted a senior Economy Ministry official.
The move would allow the ECB to start buying Spanish bonds, reducing Spain's borrowing costs so low that it would not need a disbursement of the ESM credit, according to the reports.
Spain would sign up to conditionality in the form of a memorandum of understanding, which would not result in the country being forced to adopt significant new economic reforms, according to the reports.
"One could say it's a virtual credit," the Wall Street Journal quoted the source as saying.
Spain's borrowing costs were more favourable on Tuesday, with the treasury auctioning 4.9 billion euros (6.4 billion dollars) of government bonds.
They fetched slightly lower interest rates, despite an announcement by the ratings agency Standard & Poor's that it was downgrading the credit ratings of several Spanish banks.
The banks included the two biggest, Santander and BBVA. S&P said it downgraded them following a downgrade of Spain's sovereign credit rating, which the agency dropped to near junk level last week.
One-year bonds had a yield of 2.86 per cent, down from nearly 3 per cent at the previous auction. Eighteen-month bonds had a yield of 3.07 per cent, down from 3.15 per cent.
The demand for the bonds was three times the offer.
Prior to the bond sale, the spread measuring the difference between Spanish and German 10-year bonds fell by four basis points to 431 basis points.
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