European Central Bank (ECB) President Mario Draghi’s newly unveiled plan to buy bonds and drive down the interest rates for eurozone countries in trouble has lessened the stigma of asking for help, according to Prime Minister Mario Monti of Italy. Still, neither he nor Prime Minister Mariano Rajoy of Spain are rushing to the window to request aid.
Bloomberg reported Friday that Monti commented after the plan was announced, “The drama in the word ‘help’ has been reduced.” He added, “Now, there are ways in the European Union (EU), which must be used under careful conditionality and in the interest of all, to confront” skyrocketing interest rates.
Both Italy and Spain have experienced soaring borrowing costs, and while Rajoy said over a month ago that he might consider requesting aid, he has held off doing so in an attempt to negotiate more lenient terms. He has also said that he needs time to go over the plan, which requires countries seeking aid to apply to the rescue fund under strict conditions before the ECB will step in. Monti, too, has said he is trying to keep from asking for help for Italy—but Spain is in a more precarious position.
Rajoy met with Chancellor Angela Merkel of Germany on Thursday, and said after the meeting that he had not offered any new promises regarding terms of a bailout. Merkel, for her part, said in the report that they “didn’t talk at all about conditions” for a Spanish rescue.
Rajoy has been trying to keep a campaign promise to leave pensions uncut—something that runs counter to the austerity conditions that a bailout would impose. His government has already broken other campaign promises as it struggles to bring its economy in line with the requirements of the eurozone.
Regarding the meeting and Draghi’s bond-buying proposal, Rajoy was quoted saying, “When I have anything new to tell you, I will say so. For the moment I haven’t even had the time to read about Mr. Draghi’s intervention.”
Antonio Barroso, a political scientist at Eurasia Group in London and a former Spanish government pollster, said in the report, “What Rajoy is doing is to continue trying to limit conditionality as much as he can. Judging by what he’s done in the last six months, he’s never been very proactive and there’s no reason for him to change today.”
Still, Spain is in a precarious position, and many of the countries in the eurozone are determined to make Madrid adhere to the conditions set out for more funding. ECB policymaker Luc Coene, who heads the Belgian central bank, made that clear when he said in the report that aid “will depend on all the other instances that have to approve these things and then we will intervene.”
Still, Rajoy is cautious. According to Alfredo Arahuetes Garcia, head of the economy department at Pontificia Comillas University in Madrid, “It is obvious the government needs financial aid but it also has a reputation to take care of.” He said in the report, “The government doesn’t want to look desperate, it wants to look like it’s negotiating on an equal basis, not being thrown the lifebuoy as its about to drown.”
It could be that it is only a matter of time, as believed by economists led by Julian Callow at Barclays in London. They said in a note to clients on Thursday, “In our view, we expect the Spanish government to request such a program by early October at the latest,” adding that Italy “would also benefit from being in such a program.”