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After You – Rajoy delays requesting aid until Italy does

Whether or not Spain will accept the exacting terms laid out by the European Central Bank and request a sovereign bailout has been much discussed in recent weeks.

The financial world is waiting uneasily for Spanish Prime Minister Mariano Rajoy to make a decision but it seems that yet more delays may be on the cards. Recent reports indicate that Rajoy could be purposely putting off seeking aid in hopes that market tension will push fellow Eurozone member Italy to the edge, giving the Spanish premier more bargaining tools in his arsenal.

If Italy also needs to engage the European Central Bank’s bond buying scheme to reduce the financial burden of servicing its debt Spain will be in a stronger position to renegotiate the strict terms which accompany the ECB proposal.

According to the macroeconomics head with Rothschild Asset Management, Spain ‘would be in better company and would suffer less stigma if it was to ask for a rescue at the same time as Italy.’ Raphael Gallardo added; ‘Italy needs further austerity efforts so those are probably more reachable with the support of the European Union and the ECB.’

If Italy is to be pushed to a point where a bailout request becomes essential for the nation’s economic survival the distance between Spanish and Italian borrowing costs needs to be lessened. This will require a reversal of the trend which has kept Spain’s yields above Italy’s since March.

However, whilst the Spanish Prime Minister harbours these hopes his Italian counterpart Mario Monti will no doubt be taking what steps he can to protect Italian interests. Some industry experts have predicted that Monti may be manoeuvring himself so that he is able to reap the benefits of a Spanish bailout without having to succumb to ECB guidelines himself.

Whatever Rajoy’s reasoning financial markets are becoming twitchy. With Spaniards clashing with police during anti-austerity demonstrations just how long the Spanish main-man will hold out against growing pressure from investors and other Eurozone nation’s remains to be seen.


The Pound to Euro exchange rate is currently trading at 1.2583

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