MADRID, Oct. 5 (Xinhua) -- Despite Spainish economy minister Luis de Guindos' insistance that Spain would not need a bailout on Thursday, the eurozone's fourth largest economy's rescue plan seems but only a matter of time.
Only two years ago the situation was quite different. Spain had one of the lowest public debt/GDP ratio of the eurozone, and Spanish banks seemed quite strong, as a result that they were not polluted by toxic American financial products.
Nevertheless, Spanish public finance has suffered a sharp shock in the last months. The process is similar to what happened to Ireland in 2010. The crush of Spanish housing bubble has been very strong and lasting. After three years of crisis, the price of Spanish real estate assets keeps on falling down, and it seems it hasn't reached a minimum yet.
The Spanish former socialist government tried a conservative approach, reforming banking sector step by step, in a gradual process of acquisitions and mergers, trying to increase bank size, and letting banks to increase their core capital using profits.
This approach did not solve the problems of Spanish banks, as the crisis was lasting longer than predicted. Another drawback of this strategy was that it was implemented with fails, as Spanish regional governments pressed to pursue political and regional interests instead of pursuing only more solid banks.
Rajoy's conservative government tried a different approach. It promoted two drastic bank reforms, increasing sharply the core capital requirements for banks, however, it was by no means silver bullet.
The problems of Spanish banks, closely linked with soaring unemployment and the persistent budget deficit, triggered a rapid increase of Spanish public debt. In fact it has doubled since 2008, growing from 40 percent of the GDP to 80 percent of the GDP in 2012 in the official projection of the Spanish Budget.
This level of public debt has largely disabled Spanish government to resist further storm. However, Rajoy's government did not want to ask for a bailout program, as the experiences of Greece, Ireland and Portugal has shown that the European austerity programs imposed by the Troika only had granted more economic crisis.
In order to avoid the bailout, the government has been trying to convince European governments and institutions to allow the European Central Bank (ECB) to act as a real central bank: helping to finance Spanish Government, as American Federal Reserve, Japanese Central Bank or even the Bank of England often does.
This attempt also failed, given that ECB's president Mario Draghi announced several times since this summer that the ECB will only buy Spanish bonds if Spain asks for a rescue to the European Union. Draghi reiterated his stance on Wednesday while holding the monthly press conference.
While acknowledging that Spain had made "significant progress" and a number of measures had been "announced, legislated, and implemented" Draghi said it was up to Spain to decide whether to seek help.
It was reported that Luis de Guindos, who is a former executive of Lehman Brothers, has been negotiating since this summer the rescue conditions with other European governments, mainly Germany and France, but also Finland and the Netherlands, trying to get the best conditions for Spain.
However, German government seems not to favor a fast and soft rescue but a long negotiation with hard conditions, as Angela Merkel do not want to confront German public opinion. Meanwhile, her Spanish counterpart wants to avoid asking for a rescue as long as possible, hoping that the longer he waits, softer the conditions he could get.
Experts say Spain can only resist if risk premium keeps near 400 points. Otherwise, if risk premium starts rising sharply again, Rajoy will have no another option than asking for a financial rescue immediately, accepting all conditions imposed.
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