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Spain's PM to talk bailout with Germans

Tuesday, September 04 15:41:26

Prime Minister Mariano Rajoy's eight months in power have been tumultuous from the start but September and October may be even tougher, with the Spanish leader assailed on all sides.

Internationally he is caught between diverging pressures from Germany and France, and at home he faces protests over spending cuts sought by the euro zone's big powers.

France wants Rajoy to request an international bailout to prop up Spanish finances and stop the debt crisis deepening.

But he is unwilling to ask for aid until he is sure of support from euro zone paymaster Germany which he will seek on Thursday at a meeting with Chancellor Angela Merkel.

"The worst thing that could happen is Spain asks for aid and Germany blocks it," said a senior European diplomat.

Last week Rajoy met French President Francois Hollande who nudged him to ask for help before October to give European leaders time to consider it before an Oct. 19-19 summit. But Rajoy told Hollande he was getting mixed messages from Germany, according to a source who was briefed on the meeting.

Berlin wants more details of the problems in Spanish banks, including the results of an audit by global accounting firms due later this month, and regions, which will get 45 billion euros from Spain's ce n tral government this year, before backing a bailout.

Spain has already been promised up to 100 billion euros of European money to keep its banks afloat. A sovereign bailout could deplete the region's rescue funds, the EFSF and the new ESM that will be the euro zone's permanent rescue fund.

Rajoy's team feels that Merkel is also wary of news that could jeopardise a Sept. 12 German Constitutional Court ruling on the ESM as she faces some domestic resistance to Germany providing money to prop up countries that run into trouble.

"Germany doesn't want any messages right now that will contaminate the decision of the constitutional tribunal. We can't precipitate things," said a Spanish government source. As Merkel and Rajoy meet, European Central Bank head Mario Draghi is due to give details of his plan to shore up Spanish and Italian bond prices with a secondary market buying programme. But he has said this will not happen until Spain agrees to conditions in return for EFSF help.

With borrowing costs painfully high, a recession undermining his austerity drive and Spaniards angry over cost cuts, that deal could be attractive to Rajoy even if it means protracted wrangling over the terms. (C ) Reuters