First, I noted Spain’s request to move forward €30bn in aid for its banks last week was an ominous sign about its financial position. Now, it appears that Spain is in talks for a full bailout, although they are not calling it a bailout. The euphemism being used is “sovereign aid.” I think they’ll wind up calling it a bond buying program with conditions, which is a bailout, but without use of the dreaded b-word.
Spain needs this bailout, but it does not want the stigma of asking for it. In fact, no one, the IMF, the ECB, the Germans and the rest of the EU, wants Spain to ask for a bailout. What we have learned over the last two years is that requesting a bailout is tantamount to losing access to the debt markets. The Eurozone can afford to have Greece as a ward, but not Spain. The sums are way too large even for the combined financial resources of the entire Eurozone.
Just like the article says, look for the ECB to buy bonds to stabilize the price on the open market while the EFSF purchases future Spanish debt issues straight from Spain.
The consequences of such a program are here: