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IMF Calls On Germany To Allow Spain Bailout

There is a lot of drama going on at the IMF meeting in Tokyo this week. It is about Spain. The whole world is calling upon Europe to end the drama and bail out Spain now. The IMF added its highly influential voice to the chorus yesterday, with Lagarde saying that "the ESM and the OMT need to be deployed.” The head of the IMF’s financial department said that "the European Stability Mechanism and the bond purchase program of the ECB must be perceived by markets as real, not virtual.” Strong words.

The financial media report that Merkel has advised Spain not to apply because she can’t get an aid package through her side of the parliament. FM Schauble’s mantra is that “Spain has not asked for aid”, which is a bit disingenuous.

The Spanish media are not silent about this story. El Pais reported that “opposition from the ranks makes neither Merkel nor Schäuble interested in an early request for help from the Spanish government.” The paper reports that Merkel has the votes on the opposition side, but not on her side, and she doesn’t want to legislate without her own coalition: “They want to avoid a new bitter debate about billions in disbursements to eurozone partners, given the tense previous votes on Spain, Greece and the German contribution to the ESM bailout mechanism.”

Dow Jones reports that a vote on the Spanish bailout could split Ms. Merkel's coalition ahead of German national elections in fall 2013. “A growing number of conservative backbenchers are opposed to further taxpayer aid for other euro members.”