Madrid - Willing or not, Spain is heading towards a full-blown bailout with IMF supervision, strict conditions and the threat of even more painful austerity cuts, analysts say.
Spain, the eurozone's fourth biggest economy, insists it will not be rushed down the path to seeking a new form of bailout unveiled by the European Central Bank on Thursday.
Under the scheme, the ECB said it would buy as many government bonds as needed on the open market to bring down a distressed state's borrowing costs but with one significant condition.
To qualify, the state must apply to the eurozone bailout funds for a rescue and submit to their strict conditions including International Monetary Fund supervision, which is political poison in Spain.
The Spanish government has already accepted a eurozone rescue loan of up to €100bn to save banks still struggling after a 2008 property market crash.
Now, even with high long-term borrowing costs, about €30bn in debt repayments due in October, a deepening recession and an unemployment rate of nearly 25%, it is reluctant to rush to a sovereign rescue.
"These are decisions that cannot be taken off the top of your head nor overnight," Deputy Prime Minister Soraya Saenz de Santamaria said after a cabinet meeting Friday.
"Matters that are so important for the public interest and for the future of Spaniards must be analysed with calm and prudence."
But economists suggest Spain should move with haste.
"The sooner the request is made the better given the elevated public financing needs up to the end of the year, as much at the Treasury (€83bn) as the regions (€33bn)" analysts at Spanish brokerage Renta 4 said in a statement.
Once the rescue is agreed, the ECB would buy Spanish bonds lasting between one and three years on the open market while the eurozone bailout fund could buy newly issued bonds.
"Although the debt crisis is far from being resolved, we are taking steps in the right direction," Renta 4 said.
The present risk, analysts say, is that the unveiling of the ECB plan has already brought down Spanish borrowing costs, and that could induce Madrid to delay for a better deal, or even to dream of escaping a bailout.
If the market even suspects Spain is not seeking a rescue, its borrowing costs would soar and the nation would be forced into an emergency bailout, said analysts at Link Securities.
"This scenario would be absurd considering the plan that has been outlined by the ECB," it said in a report.
Under the new rescue scheme set out by ECB president Mario Draghi, Spain would have to seek help from one of two bailout mechanisms:
-- A one-year, extendable "precautionary" credit line in return for pre-agreed conditions.
-- A stricter one-year extendable "enhanced conditions" credit line, which would require correction of identified weaknesses and avoiding market access problems.
Barcelona-based economist Edward Hugh said Spain had yet to complete the initial steps of its banking rescue.
For example, it has yet to oblige holders of bank preference shares to suffer losses - a politically costly move since many of the shares were sold to bank customers who did not understand what they were buying.
"What this says to me in big letters is 'implementation problems'," Hugh said.
"There are perceived to be difficulties with implementation which means that even if they call it 'bailout light', the conditions are going to be very strict and this may be one of the reasons Draghi is saying the IMF has to be involved," he said.
Spain might be allowed to seek a "precautionary" credit line because this would give the ECB the leverage to threaten a stricter mechanism if Madrid failed to comply with the conditions, Hugh added.
One of the strings attached could be a demand that Spain's ruling Popular Party government reduce pension benefits, he said.
"That's very, very tricky if the Popular Party on top of swallowing the preference shares have to swallow telling pensioners they are going have their pensions reduced," Hugh said.
The government has already announced plans to claw back €102bn by 2014 with austerity cuts and tax increases as it battles to rein in a public deficit that has alarmed markets.
After far exeeding its targets last year when it posted a public deficit of 8.9% of gross domestic product, Spain is now committed to reducing the shortfall to 2.8% in 2014.
But Prime Minister Mariano Rajoy made clear to German Chancellor Angela Merkel just how reluctant he was to touch pensions in a joint news conference after they met in Madrid on Thursday.
"We have taken decisions that were unpleasant for many people but it seems to me that those who have greatest difficulty and purely for reasons of age cannot fight like a young guy of 20 are the pensioners," he said.
"I have no intention at this time to change the status quo."
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