Pressure is felt from all sides. It seems that everyone wants Spain to ask the European Financial Stability Facility (EFSF) for help. Draghi seems to want it, what was said willing to buy bonds of countries in difficulty but only when they are willing to ask for help from the state-saving fund. The mechanism that the president of the ECB has in mind is simple: if the Spanish premier Mariano Rajoy asks for help from the EFSF, this can buy the Spanish Bonos on the primary market which would then be bought again by the ECB on the secondary market: a labyrinth that cannot arouse the ire of the Germans because in full compliance with the Treaties and which would spread an aura of confidence over Spain by reducing the gap that separates the Bonos from the Bunds.
But our prime minister also wants Rajoy to raise the white flag Mario Monti, happy to leave the risk of the first step to nearby Spain and be able to observe without getting their hands dirty if in the future Italy too will be able to follow the same path.
Finally they are the markets to hope that Spain will ask for aid. Since the day Draghi delivered his speech, the two-year Bonos yield fell from 4,8% to 3,45%, the low in the last three months, and for the three-year bonds the fall was from 7,67 % from the end of last month to 4,7%, the best level since the beginning of May.
In short, everyone wants it except the same Rajoy which, understandably, he doesn't want to lose his face. In his last public speech he declared that he first wanted to “know the extraordinary measures that the ECB will take, what they mean, what they ask for and if they are adequate. Only then, and depending on the circumstances, will we make one or the other decision”.
Meanwhile, the Iberian premier presented in Brussels a 102 billion euro cut plan to be carried out in the next two years in order to obtain an extra year in exchange for the achievement of the public deficit objective. Specifically, 13 billion euros will be cut this year, 39 billion in 2013 and another 50 billion in 2014. In this way, the Spanish executive plans to achieve a public deficit of 4,5% of GDP in 2013 and 2,8% in 2014. But estimates from Madrid continue to see a recession in GDP in 2013 (-0,5%), while the economy will return to growth only in 2014.
These are four major points on which Rajoy has decided to focus his cut plan. The big chunk is centered on tax revenue: over the two-year period, an increase in revenue of over 35 billion is expected, above all through the increase in VAT and the tax on fuel. The second point concerns the reform of Local Administrations which will bring a savings of about 9 billion through cuts in health care and education. Thirdly, a rationalization of public administrations is envisaged and finally around 13 billion will enter the Treasury of Madrid with the reduction of unemployment benefits and the fight against tax evasion.
For a more detailed list of the Plan of cuts click here
