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Investors show confidence over bailout scenario

Spain and Italy have not yet asked for assistance, says EC spokesman

Socialists demand Rajoy cut short vacation to explain planned billions in cuts

While officials in Brussels waited for word from Madrid over when Spain will formally request a bailout, the Spanish bourse made significant gains on Monday as investors were optimistic that European assistance is on the horizon.

The blue-chip Ibex 35 closed at 4.41 percent, at 7,053.6 points — its highest level in nearly three months — while Spain's risk premium, which hovered just below the crucial seven percent throughout the day at around 544 basis points over the German bund, closed at 534. Earlier in the day, trading on the Madrid exchange was suspended temporarily due to a technical failure but reopened with a slight 0.25-percent rise, putting trading at above 6,770 points.

The rally continued throughout the rest of the day.

The government didn’t give any new clues as to when it will seek assistance from the European Financial Stability Facility (EFSF). But there were signs of confidence coming out of the European Commission that Spain was undertaking “numerous efforts” to meet its deficit-reducing commitments brokered with Brussels.

EC spokesman Olivier Bailly on Monday denied reports that Spain and Italy have already asked leaders to kick in the EFSF fund and the permanent European Stability Fund (ESF) to begin embarking on long-awaited purchases of Spanish and Italian debt.

De Guindos thinks Brussels will not impose stricter measures because Spain has already taken the initiative

Prime Minister Mariano Rajoy sent a letter last week to EC President José Manuel Durão Barroso and EU President Herman Van Rompuy asking them to begin applying the provisions of agreements drafted by EU leaders during the last summit in June, and calling for a meeting of the Eurogroup “as soon as possible.” Reports surfaced over the weekend that the Eurogroup would call for a special session on September 3 to discuss the Spanish and Greek situation, but Bailly denied this.

The EC spokesman declined to discuss the full contents of Rajoy’s letter but said “the spirit” of the missive was “to show the efforts undertaken by the Spanish government over the past months to respect the commitments made to its partners.”

Rajoy has promised to introduce legislation calling for a raise in the retirement age and to make it more difficult for Spaniards to take on part-time retirement benefits. Some analysts believe that the new pledges are part of the Popular Party (PP) government’s strategy to show that it is implementing harsher reforms in an effort to convince Brussels not to force more bitter medicine on Spaniards — as it did in Greece, Portugal and Ireland — when the bailout funds are eventually requested.

In an interview published on Sunday in Abc, Economy Minister Luis de Guindos said that he didn’t think that Brussels would impose stricter measures because Spain has already taken the initiative of its own accord.

De Guindos also said Madrid wasn’t in a rush to ask for a European bailout and would wait until the ECB lays out the conditions for such assistance, adding that the government has covered 70 percent of its financing needs for this year.

ECB President Mario Draghi said last Thursday that the conditions in which his institution would resume its bond-purchasing program would be outlined in about two weeks, suggesting that the ESF and ESM would be used for that purpose.

Meanwhile, the Socialists have demanded that Rajoy cut short his vacation in his native Galicia and appear before Congress with Finance Minister Cristóbal Montoro. Socialist lawmakers formally filed the petition on Monday in the congressional register asking them to explain projected budget cuts for 2013 and 2014. The Cabinet last Friday approved some 38.9 billion euros in cuts for next year, and 50 billion for 2014 as part of a proposal sent to Brussels.