Spain is getting closer to asking the European Central Bank (ECB) for help in solving its sovereign debt woes. The ECB said it would consider offering assistance if Spain asks for it.
But in what seems to be semantics in Spain’s ever evolving debt saga, the country first wants a commitment from the ECB to provide open-ended sovereign debt purchases on a massive scale.
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Spain’s finance minister, Luis de Guindos, wants to see what type of aid the ECB is planning to provide before the country actually asks for assistance. But this information may not be available until after the ECB meets on September 6.
Mr. de Guindos is concerned that the ECB will place limits on aid—both on the amount of aid and the length of time aid will be available. The ECB’s previous bond purchases were seen as too little, too late and were ineffective in giving markets the needed confidence for the long-term.
Spain’s situation is worsening to the point where it will soon have no choice about asking for aid. Speculation in the marketplace that the ECB would help Spain on a grand scale is already lifting market sentiment.
And Spain is already acting on reforms required by the ECB in exchange for the assistance. At a meeting on August 24, plans are for the country’s Fund for Orderly Bank Restructuring (the FROB) to be able to seize control of troubled banks and to purchase toxic real estate assets and hold them until buyers come forth.
Mr. de Guindos says the price for those assets will be low enough to prevent taxpayer loss when the assets are eventually sold. He has confidence that Spain’s proactive measures will keep the ECB from asking for new cuts and economic overhauls.