Prime Minister Mariano Rajoy on Wednesday revealed that just three days before Spain requested a bailout for its banks, he had written to European Council President Herman Van Rompuy setting out the case for greater European integration to save the euro.
With Spain’s risk premium going through the roof, the letter outlined Rajoy’s argument that the markets were not attacking Spain per se but the single currency itself, and that the only remedy was to initiate moves toward a fiscal and banking union in the euro zone.
“It is necessary to adopt decisive and forceful measures to leave clear the irreversibility of our integration project, and in particular the single currency,” the letter said. “The uncertainty regarding the euro is preventing the adjustment measures many countries are carrying out to have the desired effects that they should have,” the letter continued. “This situation is worsening in an accelerated manner and it is necessary to address it as soon as possible.”
Rajoy made the revelation on Wednesday in Congress, where he told lawmakers that what was required at the moment is for European to make a strong commitment statement in favor of greater union before opening a debate on how best to achieve this. “The future of the euro depends on us initiating this debate,” he said. “The road won’t be easy but it is an indispensable goal on which we must be in agreement.”
Shortly after Rajoy spoke, the European Union’s statistics office Eurostat confirmed that, contrary to what the government has indicated, the loan of up to 100 billion euros to resolve the Spanish banks’ problems would be accounted for as public debt and that the accompanying interest payments would, therefore, swell the deficit and exacerbate the already daunting challenging of guiding Spain’s financial situation back to the path of sustainability.
In response to a report published Wednesday by Spanish daily El Mundo that the loan would be under very favorable conditions that include an interest rate of three percent and a maturity of 15 years with a stay on principal repayments until 2017, the Economy Ministry said the terms of the credit have yet to be decided. However, the secretary of state for the economy, Fernando Jiménez Latorre said: “With current market conditions […] 15 years at interest rates of three percent are undoubtedly very attractive conditions.”