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TheStreet Open House

Spain: Decision On Bailout Within Weeks

CIARAN GILES

MADRID (AP) â¿¿ The Spanish government said Wednesday it will decide within the next few weeks whether to ask for outside financial help, noting it might opt for a precautionary line of credit instead of bailout cash.

Spain is under pressure to tap a eurozone financial aid system that would give the European Central Bank the green light to buy the country's government bonds. That would lower Spain's borrowing rates in bond markets, relieving its financial burden.

A spokeswoman for the Spanish economy ministry, said the government was also still considering not asking for any aid at all, not even a credit line. She was speaking on condition of anonymity in keeping with ministry policy.

But credit rating agency Standard & Poor's on Wednesday delivered Spain another blow when it downgraded the creditworthiness of five indebted Spanish regions by one and two notches. They were Andalucia, Galicia, Madrid, Aragon and the Canary Islands.

The step came after the agency last week cut its rating on Spain's debt by two notches to BBB-, just a step above junk status, or non-investment grade. By indicating that it's a riskier asset to hold, S&P's downgrade may make it more expensive for the Spanish government to borrow money as it could spook bond investors.

The country's financial problems did not stem from government overspending, as in Greece's case, but from huge losses that its banks incurred after a property sector crash. Regional governments are also heavily in debt and need help from the central government in Madrid.

The issue of Spain's financial needs is likely to dominate a summit of the 27 leaders of the European Union on Thursday and Friday.

Germany has said Spain does not need a bailout and Prime Minister Mariano Rajoy may be reluctant to accept a rescue ahead of regional elections this Sunday. But analysts say that if Spain delays the request too long, investors may grow jaded and sell off its bonds again.

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