With a little help from their friends

24 April 2012 By Neil Unmack, Fiona Maharg-Bravo Follow @unmack1

Spain is too big to bail like Portugal or Greece – but it can be saved. Spain needs a three-way package: aid for its banks, support for its bond market and a revised fiscal programme. It could be controversial, but the alternative, a contagion spiral, would be worse.

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Spain’s short-term borrowing costs nearly doubled at a sale of three-month and six month bills on April 24 compared to a month ago. The Spanish Treasury sold 725 million euros of 3-month bills and 1.2 billion euros of the 6-month bill. The average yield on the 3-month bill was 0.634, up from 0.381 percent, while it was 1.580 percent on the 6-month bill compared with 0.836 percent a month ago. Ten-year yields stood at 5.89 percent.
Policymakers in Spain and Europe has so far ruled out any outside help for Spain. Ewald Nowotny, a member of the European Central Bank Governing Council, told CNBC he didn’t think the country needed help from the EU or the International Monetary Fund at this stage.
There are no plans to use the euro zone’s temporary or permanent bailout funds to recapitalise Spanish banks, EU Economic and Monetary Affairs Commissioner Olli Rehn told Reuters in an interview on 20 April. The comments came after the International Monetary Fund called for the euro zone to use its temporary European Financial Stability Facility (EFSF) or the permanent the European Stability Mechanism (ESM) to directly recapitalise Spanish banks.

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