Spain: Gliding slowly toward a bailout?

Spain's Prime Minister, Mariano Rajoy, may not seem a natural performer but he appears all too familiar with the waltz; a typically slow dance, usually partnered, often mournful, with little room for improvement.

As his country faces the prospect of a bailout, Rajoy's gentle glides may mark him as a natural on the political dance floor. But to others, his moves are far too predictable.

In recent weeks, Rajoy has measured his steps carefully. He has been balancing political tactics with the need to stabilize the economy. He wants to avoid the fate of Greece, Ireland and Portugal, which have been left at the mercy of foreign creditors.

Gliding sideways

But his steps are being read like an open book. Spaniards no longer believe he can keep up the tempo. Media speculation is centered on a European Union summit on October 18 and 19, and the potential for Rajoy to seek a bailout at that time.

But this gloomy conservative has built a career on digging in his heels, and some suggest Rajoy will wait until after regional elections in the Basque country and in his home state of Galicia on October 21 before asking for any help.

It's all tactics of course. By withholding unpopular news until after the election, Rajoy may have a better chance of winning a full majority in the local parliament. But playing politics with the budget may not be a good idea. Rajoy delayed announcing the 2012 budget in March until after a regional ballot in Andalucia -- the Spanish region with the highest unemployment in the country at 32.8% -- but the move did not pay off. His center-right party, Partido Popular, failed to oust the Socialists.

In harmony with the partner

Rajoy's political moves have, to a certain extent, been in harmony with the European Central Bank.

The ECB this month outlined its plan to save the euro by offering to make unlimited purchases of short-term government bonds. The announcement eased pressure on Spain -- and Rajoy -- and the country's borrowing costs fell.

Last week, Rajoy had yet another reason to continue his slow dance. The Spanish Treasury sold $6.3 billion of three-year and 10-year government bonds, more that it had planned.

But, despite the optimism, some suggest Rajoy should request aid now, when market conditions are more favorable. Delays in acknowledging Spain needs a support package may be more costly for it in the long run.

According to Nicholas Spiro, managing director of Spiro Sovereign Strategy, there's a "surreal air" to Spanish debt auctions. Spiro, in a note, wrote the bond sales are well received because investors are pricing in an eventual request from Madrid for an ECB-backed bond-buying program.

Staying steady

Rajoy has often said he sees little point in asking for aid. This month, in his first TV interview since being elected, he said he will not accept outside conditions over a possible bailout.

Speaking to Spain's national broadcaster TVE, Rajoy said: "We have to study any conditions imposed on the bailout package and then we will see. But of course, I would not like it if they told us where we had to cut or where not."

Spaniards taking to the streets in protest don't care about the politics as long as they can get a job, pay their mortgage and eat. Only a week ago, tens of thousands of demonstrators from across Spain took to the streets of Madrid in a large anti-austerity protest.

The last dance?

Meanwhile, on the streets of Barcelona, Rajoy faces a domestic challenge that could make seeking a bailout even more complicated.

Last week, Rajoy rejected Catalonia's demand for greater economic independence. As the most economically powerful region, Catalonia argues it can do without Madrid. Madrid disagrees. Fears of separatism are so acute that Spain's King Juan Carlos -- in an unusual move -- has spoken out.

The king released an open letter on the Royal Palace's website calling for national unity and lamenting the country's economic pain. "The worst thing we can do is to divide our forces, encourage dissension, chase illusions, deepen wounds," the king wrote.

Many believe Rajoy will continue his slow dance despite the political discord. But it seems, no matter the delays, Spain is slowly stepping toward a bailout. As such, this could be Rajoy's last political dance.

By Isa Soares, CNN September 26, 2012