13.15 Spanish PM Mariano Rajoy has broken the record for the amount of times you can deny you need a bailout in one sentence. Speaking in Warsaw, he said:
To talk about a bailout for Spain at the moment makes no sense [...] Spain is not going to be rescued; it’s not possible to rescue Spain, there’s no intention to, it’s not necessary and therefore it’s not going to be rescued.
The gentleman doth protest too much, me thinks.
Spain's Prime Minister Mariano Rajoy inspects an honor guard in Warsaw on Thursday (Photo: Reuters)
13.06 Bank of America puts forward a case for both countries to "request some support to avoid the stigma of one country acting alone and in order to break with the typical European piece-meal approach."
However, the eurozone's €700bn bailout pot is not big enough to deal with both countries' problems. Italy has to refinance €600bn of debt over the next three years, while Spain has a total of €300bn of debt that must be rolled-over.
Here's BoA's three-pronged plan:
First, ECB rates could be lowered sharply, as getting through the 1% threshold would send an important signal to markets, which together with the announcement of a third LTRO and ultimately a possible SMP revival could affect longer maturities powerfully (though the issue of seniority remains a serious impediment to the efficiency of the SMP programme and we would not expect a large scale intervention);
Second, the EFSF could be used to potentially intervene in the secondary market or support bank recapitalisations without a programme, but on the conditions that countries comply with certain macro-economic policies including the respect of their European commitments (SGP and macroimbalances) and after drafting a Memorandum of Understanding (MoU) with appropriate policy reforms;
Third, should the euro area authorities judge that there is a systemic threat for financial stability from one country’s banking sector, or should access to markets have become impeded, then a credit line under one of the new programmes would be a final option short of a full-fledged loan programme.