Rajoy still undecided on bailout

Prime Minister Mariano Rajoy said Friday he had yet to make his mind up on whether to ask for a second bailout to ease Spain’s borrowing costs, and denied he came under pressure to decide at the European Union summit meeting on Thursday in Brussels.

“I have to take this decision as head of the government and it hasn´t been taken,” Rajoy told reporters. “If I have to take it, I will take it.”

Rajoy said it was important that the bailout mechanisms exists. The most likely option for Spain would be to seek a precautionary credit line from the European Stability Mechanism (ESM), which in turn would trigger the purchase of Spanish sovereign debt in the secondary market by the European Central Bank (ECB).

The summit in Brussels postponed creating a pan-European banking union under the sole supervision of ECB that would allow the direct recapitalization of the bloc’s banks until 2014. Both Rajoy and French President François Hollande had called for the union to be in place earlier but German Chancellor Angela Merkel was opposed to this.

Despite that setback, Rajoy was still upbeat about the outcome of the meeting. “A few months back, nobody was talking about either a fiscal or banking union,” he said. “There is willingness in Europe to continue moving toward integration, but things are never easy,” he added.

Asked about the possible easing of Spain’s deficit-reduction program because of the deepening recession, Rajoy said: “Spain has targets and the intention of the government is to achieve them.”

The government plans to reduce the deficit to 6.3 percent of GDP this year and to 4.5 percent the following year before bringing it back within the EU ceiling of 3 percent of GDP in 2014. The IMF has questioned whether the country can meet these targets, predicting that the economy will shrink 1.3 percent next year, compared with the government’s official forecast of a contraction of 0.5 percent.

Rajoy said that the general strike formally called on Friday by CCOO and UGT, the country’s main labor unions, for November 14 to protest the government’s austerity drive would not help the country. “I don´t think it will help Spain at all; it won’t help resolve the economic problems, which is what the government is trying to do with the decisions it has taken. It won´t help Spain’s image at all,” he said.

Rajoy said the government has no other choice other than to introduce “very harsh” measures to set the basis for a recovery in the economy.