October 8, 2012
The last few weeks have brought inconsistent newsflow on Germany’s response to a Spanish application for EFSF/ESM support.
While in July, a package of EUR 100 bn was designated to the Spanish banking sector, only EUR 59.3 bn will be needed according to the latest stress tests. The remaining EUR 40.7 bn could be redesignated to the public sector – most likely as precautionary funding assistance under a soft MoU, implying a credit line and/or primary bond market intervention, paving the way for corresponding ECB interventions on secondary markets. As that would only need the approval of the Bundestag’s budgetary committee under ESM (EFSF: whole assembly), Germany could have an incentive to delay any Spanish application until ESM is up and running (mid-October).
On the other hand: ESM's role in Spain will certainly not be confined to EUR 40.7 bn, and any bigger involvement would require approval by the whole Bundestag. Next Monday's Eurogroup will most likely give indications on the further logistics of rescue packages. That, in turn, could provide some clarification on whether the Bundestag will vote on a Spanish package together with that for Cyprus and the next tranche for Greece. The latter could be the subject of contentious political debate given the critical assessment of the Troika.
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