The Economist. When a bail-out for Spain arrives, it is likely to be prolonged. 27oct2012
THE calm that has followed Mario Draghi’s vow in July to do whatever it takes to save the euro is deceptive. The head of the European Central Bank (ECB) pledged to make potentially unlimited purchases of short-term government bonds of euro-zone countries that ask for (and receive) help from international lenders. But his pledge is yet to be tested. When it is, the supplicant will probably be Spain, the fourth-largest euro-area economy.
The government of Mariano Rajoy hopes that Spain can get a bail-out of its public finances (it has already won support for its banks) without having to sign up to harsher austerity measures than those it has already implemented. It argues that Spain is suffering a temporary liquidity problem. It wants the European Stability Mechanism (ESM), the euro area’s permanent rescue fund, to buy some of Spain’s newly issued debt while the ECB acts to bring down bond yields in the secondary markets. Markets will stay open to Spain, and its public finances will right themselves on their own. To sceptics, all this sounds like wishful thinking.
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