Rajoy delays bailout request until interest impact is clearer

Tim Wallace
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SPAIN will not ask for a bailout until it knows how much it would bring down the government’s borrowing costs, Prime Minister Mariano Rajoy said yesterday.

He told a Madrid radio station that the conditions of the bailout will be important, but so will the impact on bond yields.

Currently the government’s 10-year borrowing costs stand at 5.66 per cent, well above that of Eurozone safe haven Germany whose yields are just 1.439 per cent.

If Rajoy does request a bailout, he will meet the conditions for the European Central Bank to start buying the government’s bonds under its new outright monetary transactions (OMT) plan.

Meanwhile Spanish newspaper El Pais revealed the European Commission will today slash Spain’s economic growth forecast, predicting a 1.5 per cent recession, barely better than this year’s 1.6 per cent contraction.

That represents a much sharper drop than the 0.5 per cent officially forecast by the Spanish government, and will dent the Prime Minister’s hopes of returning to growth in 2014.

The newspaper also said the forecasts show Spain’s budget deficit remaining high, coming in at 5.8 per cent in 2014, again above the government’s target of 2.8 per cent and exceeding the Eurozone target of three per cent.