Spain faces ‘total emergency’ as fear grips markets

More evidence of Germany playing an influential role through the crisis.

“We’re in a situation of total emergency, the worst crisis we have ever lived through” said ex-premier Felipe Gonzalez, the country’s elder statesman.

The ECB is pushing Spain to accept a loan package from the EU bail-out fund (EFSF), the proper body for fiscal rescues. Mr Rajoy has refused vehemently. Any recourse to the EFSF is viewed with horror in Madrid, entailing an unacceptable loss of sovereignty.

The result is paralysis as both sides refuse to shift ground. Mr Rajoy is clinging to hope that the EU will take care of Spain’s banks through an EMU-wide recapitalization plan. This would avoid stigma and draconian conditions.

Brussels floated the idea on Wednesday for a eurozone “bank union” and use of the European Stability Mechanism — which has not yet been ratified by most states — to rescue banks and sever the dangerous nexus between crippled lenders and crippled states.

The proposals were shot down instantly by Berlin. Such plans amount to debt-mutualization, a form of back-door eurobonds. German opposition is “well known”, said the Kanzleramt.

Sources in Berlin say Germany wants Spain to tap the International Monetary Fund — as well as the EU — to spread the rescue burden to the US, China, Japan, Britain and others.

Full article: Spain faces ‘total emergency’ as fear grips markets (The Telegraph)

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