“Europe will not require new adjustment measures in Spain,” according to a high-level government source, who said “what we have to do is to comply with the recommendations from the last European Council, and that is what we will do.”

According to this source, the key issues that are being negotiated in Brussels now are not the conditions for the rescue, but instead how the financial help program will be designed, and most certainly, it will be channeled through a credit line.

While the format of the rescue for Spain is being negotiated, the German Federal Constitutional Tribunal on Wednesday gave its authorization for Germany to participate in the European Stability Mechanism (ESM), which holds €500bn, although under certain conditions. It also authorized the budget discipline treaty, and thus, gave green light for the European permanent rescue mechanism to enter into effect.

No specific amount for Spain

In the negotiations in Brusseles, contrary to the rescue for the banking sector of a credit line of up to €100bn that was agreed for Spain in June, a specific amount is not discussed for a new rescue. 

Instead, the issue is to put an amount at Spain’s disposal that will be sufficient in case it will be needed, in case market pressure increases the cost for the state to finance itself. This will be determined in a new Memorandum of Understanding.

The problem for Spain is that this credit line must be approved unanimously, which explains the frenetic diplomatic activity during the last weeks on behalf of the government, including contacts with some of the partners that are most critical against the rescue, such as Finland.

Monitored by the 'troika'

Ireland, another country that was initially critical, has achieved more flexible guarantees for its banks towards the European Central Bank, and will not put obstacles in Spain's way. Neither will Germany, especially after the rule in the Federal Constitutional Tribunal on Wednesday.

The fact that there will be new conditions does not mean, however, that the Spanish government will be able to act freely. They are aware that they will be monitored by the ‘troika’ – the ECB, the European Commission and the International Monetary Fund – but without new recommendations that they will be obliged to comply with.

A longer version of this article is available in Spanish here.