Well, this was a delightfully daft rumour of a Spanish bailout on Wednesday.
Here’s the denial first, via Reuters:
RTRS-EU COMMISSION DENIES REPORT THAT EU, IMF AND U.S. TREASURY DRAWING UP LIQUIDITY PLAN FOR SPAIN
While the report in question appeared in the Spanish newspaper El Economista (translation FT Alphaville’s):
A liquidity plan, confirmed by sources close to the issuing entity, and also corroborated by senior business leaders, will incorporate financial aid in the form of a credit line amounting to between 200,000 and 250,000 million euros, compared with 110 000 million that went to Greece.
Apparently, the decision could have been made in a special, secret meeting of the Board of Directors of the IMF, which was convened solely to discuss the Spanish economic situation.
Hmm. ‘Apparently’. The IMF chief Dominique Strauss-Kahn is due to arrive in Spain for talks on Friday, but the government has denied that a bailout is on the agenda.
It would be a curious credit line in any case — Spain is already covered by the eurozone’s freshly-minted €440bn SPV, and would also have access to an IMF lending programme if capital markets shut down.
The El Economista story’s also tacked on to a pretty full-throated editorial attack on the Spanish prime minister José Luis Rodríguez Zapatero:
No more annoying the partridge [the Spanish idiom for beating around the bush -- honest]. Your credit has expired. The best thing to do is to give way to another government with a more technical background. Yours has proved incapable of understanding the market are not just speculators, but investors who won’t punt their money on a country run by Zapatero.
So — this rumour is looking suspect, to say the least.
But the fact that the rumour is out there shows how vulnerable Spain is on the market at the moment. That’s especially after a disappointing bill auction on Tuesday, plus ongoing fears over Spanish banks’ balance sheets.
And the rumour is having an effect somewhere. Via Reuters:
RTRS-SPANISH/GERMAN 10-YEAR GOVERNMENT BOND YIELD SPREAD WIDENS TO 222 BPS, EURO LIFETIME HIGH – TRADEWEB
Maybe it’s as we’ve noted about the eurozone SPV – now that potential liquidity support is on the table, the market is testing the likelihood of it being activated.
After all, as a City broker told FT Alphaville, there is a handy Spanish proverb for this kind of situation:
Cuando el rio suena, lleva agua
If the river is noisy it’s because it has water
Which is kind of like no smoke without fire. Well — it’s looking like it’s too late to avoid annoying the partridge, anyway.
Related links:
Any scenario possible for Spanish bank funding, says JPM – FT Alphaville
Spanish interbank spectres - FT Alphaville