Thursday, August 9, 2012

Clouds gather over Spain's Rajoy as EU bailout nears

(Reuters) - Spanish Prime Minister Mariano Rajoy faces a cloudy return from his short summer break as his expected request for European aid in September will spur protests on the street and deepen cracks emerging in his conservative People's Party.

Rajoy's popularity plummeted in the first seven months of his 4-year term as his communications faltered while he enacted successive austerity plans and the euro zone's fourth biggest economy sank into recession with unemployment over 24 percent.

With borrowing costs painfully high - the yield on Spain's benchmark 10-year bond is unsustainable at close to 7 percent - Rajoy is expected to make a formal request for coordinated action from the euro zone rescue funds and the European Central Bank.

A rescue plan of EU buying of Spanish bonds, or a precautionary credit line, would reduce market tension but also come with harsh conditions at a time when protesters have taken to the streets against budget cuts.

The Socialist opposition rejected an earlier agreement for a 100-billion-euros European rescue for Spanish banks and is also against a sovereign bailout, and there are now even voices against it within Rajoy's ruling People's Party (PP). Read More