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Spain Could Delay Aid Request Until October 21

Since the beginning of August, markets are awaiting a Spanish aid request – a  prerequisite  for bond buying from the European Central Bank. Spain was taking its time with the move, and it might wait even further, until October 21st.

On October 21st, the northwestern Spanish region of Galicia holds elections. These elections are closely tied – only 5,000 votes according to some estimates. Rajoy, a Galician, would like to prevent a historical loss of this region at all costs.

Delaying the humiliating aid request could help Rajoy’s Partido Popular secure a victory.  El Economista reports about this option (original Spanish, Google Translated)

Spain officially said it needed to see the more details before making the request. Such details have been presented by ECB president Mario Draghi: the OMT is ready for use, but the precondition remains: governments must ask for aid and conditionality is a must.

Spanish bond yields fell sharply after Draghi’s OMT was announced, on the assumption that bond buying would start shortly. Perhaps this makes the Spanish government more relaxed. However, Spain faces no less than 6 bond auctions up to October 21st.

And just before these elections, the EU Summit is planned for October 18-19. Would Rajoy come empty handed to the summit just because of the regional elections? This would be quite a gamble, but anything is possible. Internal politics always play a significant role in external politics.

Spain is hesitant to follow Greece’s path and face even harsher austerity that it is already facing. In addition, Spanish politicians would have a hard time asking for a bailout after they declared this wasn’t an option. Draghi even made it easier for Spain, by saying that the ECB’s bond buying could come also with a |precautionary program”, not necessarily a full adjustment program (bailout).

The Spanish government has a long list of economic and political issues. In the northeast, the region of Catalonia is bracing itself for massive demonstrations on September 11th – Catalonia’s national day – a public holiday. This time, support for independence has reached an absolute majority and anger against the central government is high.

Many citizens in the industrious region of Catalonia are feeling  that they are subsidizing the rest of the country for years. But recently, the region’s government ran out of money and was shut out of money markets. So, it found itself asking for aid from the central government. This move also raised national feelings.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.