Fears central bank vows are losing force

Tim Wallace
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THE EUROPEAN Central Bank (ECB) and Spanish government must move towards a bailout soon if they are to keep markets’ confidence, analysts at Deutsche Bank warned yesterday.

Markets can no longer be held up by policymakers’ promises alone, and politicians and central bankers will be forced to act by a loss of confidence if they do not settle on a bailout deal quickly, said analyst Gilles Moec. “Spain’s disappointing auction on Tuesday may be the first sign that the sovereign is touching the limits of ‘virtual intervention’, where the mere potentiality of bailout fund intervention guarantees comfortable funding at an acceptable cost,” he said.

The Spanish government has to roll over €62bn (£49.8bn) in debt next year, on top of up to €60bn in new issuance. Such a high rate of issuance means “the debt trajectory is not looking good”.

As market and political pressures build, Deutsche Bank expects Spain to seek a bailout next month.

“We don’t doubt a positive outcome ultimately though: the Greek episode shows that the Europeans want to smother the fire – at all costs,” Moec noted.