In their recent meetings, the Spanish Finance Minister Luis de Guindos and his German counterpart Wolfgang Schauble agreed that the Spanish borrowing costs are unjustified; however, the European Central Bank and Spanish Finance Ministry has refused to comment on the matter but credible sources claim that this is a matter that has been talked about. Whether this is the move Draghi was talking about or not, it is yet to be seen this week when ECB makes its Rate Decision.
Analysts have said that such a move would rule out a full bailout, which Spanish government has already denied exploring. Further, analysts have noted that establishing cuts in the health and education sectors, which are governed by autonomous regions, will cause tensions and we are yet to see how that will play itself out. However, German acceptance will quell most of Spanish public’s fears.
Whether a commitment to new cuts is a prerequisite for ECB help and German acceptance to the bond buys is something analysts are still looking at. However, it must be remembered that last year, Trichet, the former ECB President sent recommendation to Spain and Italy and after Italy announced new measures, ECB bought the nations bonds. Italy retreated from its commitment which forced the ECB to terminate the program. With these issues in focus, and Germany still opposed to direct bond buying and offering ESM a banking license, there is a high chance that Draghi and ECB might disappointment in the coming press conference. The market eagerly awaits for ECB decision and the Spanish report adds to confidence in Draghi’s words.