Spain expects positive developments over eurozone rescue fund negotiations



Jose Manuel Campa - Expects a Deal on EFSF Soon

Jose Manuel Campa – Expects a Deal on EFSF Soon

Despite differences of opinion over the technicalities, Spain expects European leaders to reach an agreement soon over strengthening the European Financial Stability facility (EFSF), said Spanish Economy Secretary Jose Manuel Campa.

Discussions are currently underway about beefing out the emergency rescue fund so that it can support any future sovereign crisis faced by its member countries. Germany however, is not keen to push the idea of a bigger bailout fund in order to support struggling economies.

Following a meeting with investors, Campa said in an interview in Paris that “I am confident there will be an agreement. The sooner the better”.

Spain is open to discussing all possible options before to expand the EFSF, including increasing the fund’s lending capacity and allowing it to buy sovereign bonds. Reaching an agreement over the outstanding issues were more important than the actual tools to be made available, since its paramount to convince the world about the trading bloc’s future survival, Campa said.

“There are concerns about possible very drastic scenarios going forward where it’s important that we provide the message that the tool, the facility, is flexible and sufficiently capable of dealing with these concerns.

“The important thing is the underlying message and a toolbox that clearly indicates that there is a commitment to euro area stability. Whether the facility can buy back bonds or can be flexible on interest rates, it’s almost like a technical debate”, he said.

European leaders are expected to discuss the EFSF on the scheduled meeting on Friday, although Germany wants to defer the discussions till the next meeting on March 24-25. The group is expected to discuss raising the lending capacity from the current €250 billion and authorize EFSF to buy bonds of troubled economies. EFSF has a headline lending capacity of €440 billion, although on technical grounds it is allowed to lend up to €250 billion.

The group may also discuss reducing the interest rates being paid by Greece and Ireland, in order to avoid a future default by the two countries and a subsequent restructuring of its debt.

Germany is due for state level elections next month and a bigger bail-out package may not be a good idea among the German voters since the country’s economy has been performing the best among the EU members.

Campa said he’s “very, very, fully confident” that Spain will not require a bailout package like Ireland and Greece.

The recent ‘sellout’ of Spanish and Portugal’s bond shows investor confidence in the single currency block. However, “Concerns exist in the market on the way the facility could be handled in the future with more problems, and it’s important to confront those situations”, he said adding that the recent calm in the market about the future of Euro has given the bloc a chance to reiterate its commitment to the single currency.

“The calm of the last weeks has come as a direct relationship to messages that have been coming into the euro area and we should take advantage of that calm right now to build on that confidence and provide a strong message on euro area stability”, he concluded.

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