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Spain's budget announcement today moves the country closer to a program of bond buying by the ECB
09/27/2012 5:00 pm EST
What was the message? That a European Central Bank program of bond buying is on the way. The budget is a clear attempt to convince EuroZone leaders that Spain is already doing all it can to get its budget deficit under control that therefore Spain doesn’t need anything like the degree of supervision of its finances that Greek had to accept before getting its bailout agreement. The European Central Bank has made a program of bond buying conditional on Spain 1) formally asking for help, and 2) accepting a supervised program of financial and economic reform. Spain has balked at making that request unless the conditions are minimal and focused on economic reform.
The budget is designed to reduce Spain’s budget deficit for 2013 to 4.5% of GDP from the 6.3% target this year. The $16.8 billion package includes a new tax on lottery winnings and a cut in spending by national ministries
The reaction so far from EuroZone leaders has been everything Spain could have hoped for. The budget “responds to country-specific recommendations and goes even beyond them in some areas,” European Union Economic and Monetary Affairs Commissioner Olli Rehn said while Spanish ministers were still presenting the budget.
The budget certainly doesn’t say that Spain will make a formal request for bond-buying tomorrow but it does bring such a program closer and that—plus the end of the quarter and a bounce after two days of selling—is what has pushed the market up today.
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