The eurozone is engaged in a standoff with the Spanish government at the moment – the ECB has already unveiled its plan to drive down Spanish borrowing costs, but Spain refuses to ask for help (an absolutely necessary precursor).
The reason is simple: Spanish prime minister Mariano Rajoy wants to get re-elected at some point, and ushering in the troika of EU, ECB, and IMF creditors to impose austerity measures on the Spanish economy in exchange for bailout funds won't be great for his next campaign.
As a result, Europe is in limbo – watching and waiting to see what happens next.
However, the Financial Times is reporting that, according to government sources, the EU is busy working behind the scenes to make it easier for Rajoy and Spain to come to the table:
According to officials involved in the discussions, talks between the Spanish government and the European Commission are focusing on measures that would be demanded by international lenders as part of a new rescue programme, ensuring they are in place before a bailout is formally requested.
One senior European official said negotiations have been conducted directly with Luis de Guindos, the Spanish finance minister. The plan, due to be unveiled next Thursday, will focus on structural reforms to the Spanish economy long requested by Brussels, rather than new taxes and spending cuts.
“It is a kind of ‘proto-programme,’ if such were needed,” the official said. The commission could, however, still request more austerity measures next month to meet existing EU budget targets, which Madrid is expected to miss.
Pre-approval by Brussels for Thursday’s announcement is intended to ease the political quandary facing Mariano Rajoy, the Spanish prime minister. Mr Rajoy is reluctant to ask the eurozone’s €500bn rescue fund, the European Stability Mechanism, to begin purchases of Spanish sovereign bonds because he fears that EU monitors would demand tough conditions in return.
So, the idea is that this "proto-programme" can be presented to Spain before Rajoy has to ask for aid, hopefully making the decision a little less painful politically.
Next Thursday, markets will see if it worked.
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