European Council President Herman Van Rompuy was reported to be preparing a document which will be presented at the EU summit on 18 and 19 October and which proposes granting financial incentives to those member states which apply all EU recommendations.
The draft report states that the EU is considering the possibility of supporting the reformatory efforts of some of the member states. This could be done by providing limited, selective, flexible and temporal incentives.
In return, the Eurozone would require that the beneficiary countries sign individual binding contracts including the reforms which are supposed to be carried out, their limits and their application.
The objective of the solution proposed by Van Rompuy is to advance toward an economic union in the Eurozone by creating mechanisms which prevent the forming of unsustainable budgets.
Rajoy's bailout is not imminent
The Kingdom of Spain won't make any bailout request right away as Spanish president Mariano Rajoy has let market down after saying that there is not an imminent decision. Rajoy made the statement on Tuesday at a press conference following a meeting with regional leaders.
Rajoy also said at the conference that Spain's regions have reiterated their commitment to meeting budget targets as agreed with EU authorities.
Previously, the Spanish president rejected the bailout possibility just before the meeting as answer of Reuters' report that Spain is ready to submit the request for aid. The Spanish risk premium and the yields on 10-year bonds were declining today despite the increase in unemployment.
Spain 10Y bonds closed the day at 5.81% with 436 points as differential with German one. Italian 10Y bonds at 5.10%, Ireland 10 years note at 5.10%, French at 2.21% and German at 1.45%.
On currencies and after hitting a 1-week high of 1.2967, EUR/USD lost momentum and retreated slightly as Spanish PM Rajoy said in a press conference that a bailout request was not imminent.
However, the setback was contained by the 1.2935 area, leaving the pair searching for direction in a quiet American session.
China says not to buy EU bonds until fundamental problems are resolved
Meanwhile, the never-ending rumor on "China bailing out Europe" has been disowned on Tuesday by China Investment Corp Chairman Jin saying that "it’s unrealistic to expect China to invest in bonds issued by heavily indebted European countries until fundamental problems are resolved."
Boris Schlossberg, BK's analyst commented in his twitter account "so China says no to EU bonds and $EURUSD actually ticks up. Listless beyond belief." EUR/USD is trading at 1.2934 after peaking to intra-day highs close to 1.2950 zone.
Moody's says to publish Spanish rating review this month
Finally, Moody's Investors informed that the agency would announce results of Spanish review in October. "Moody's review of Spain's rating is continuing to assess a number of factors, including Spanish banks' capital needs, the nature and size of support mechanisms, the recently released 2013 budget plan and the consequences for the euro area's crisis management framework of the further advancement of a banking union," said a spokeswomen according to a report from Reuters.
It Seems Moody's is assuming Spain will request bailout in the next weeks and the agency would like to be in wait and see mode on this before taking decision.
