SPAIN´S AID REQUEST – EXPECTED AND DESIRED BY MANY

The following headline tells us much about the fabric of the current hopes for a sustained recovery: “Worries Remain Predominant on Spain´s Hesitance to Request Aid”.

Here is how the article, one of many similar published this week, begins: “The main highlight remains on Spain which still has to decide whether to tap the bloc`s 500 billion-euro permanent fund, the European Stability Mechanism, to start buying of Spanish sovereign bonds. The hesitance in the Spanish government is causing worries in markets; a senior ally of Chancellor`s Angela Merkel said yesterday Spanish Prime Minister Mariano Rajoy must stop prevaricating and decide whether his country will request an aid or not.”

So, Germany is hoping for Spain to request aid?!?! What appears paradox at first does make perfect sense in this world of “Monopoly Money”. The head of the Bank of Italy, Fabrizio Saccomanni, explains:

“Spain requesting a bond buying program by the European Central Bank could help lower interest rates [in Spain and across the Eurozone] and show the ECB can defend transmission of its monetary policy. The ECB´s ability to implement its monetary policy has been disrupted by the “implicit risk of a breakup of the euro”, which has inflated yield spreads beyond what´s justified by national economies. The ECB´s bond-buying program seeks to address the national and systemic causes of wide yield differences. Application of this new facility [as presented in Draghi´s July 26th speech] by Spain would sort of show to markets that the European Union now has the instruments to deal with this systemic problem …”

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