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.
