Rising expectations that Spain will soon ask for a euro zone credit line to help cut its borrowing costs look set to dominate a European Union summit beginning on Thursday (18 October), potentially crowding out talks on a disputed banking union.
The two-day summit, the fourth among the 27 EU leaders this year, was meant to focus on efforts to establish a single supervisor for the euro zone's banks, as well as longer-term plans for closer integration of the currency union.
But indications from Spain that it is approaching the point of formally requesting aid, potentially allowing the European Central Bank to step in and buy its bonds, and a push by Germany for a super-commissioner to oversee euro states' budgets, mean the existing agenda could be overturned.
There is even a narrow chance of a separate summit of the 17 euro zone leaders after the main meeting to discuss the most pressing issues affecting the currency bloc, including Greece, Cyprus, Italy and Spain, some officials said.
Formal Spanish request expected on 12 November
Spain has been ready to ask for euro zone help since the beginning of the month, officials said, with the most likely method being a precautionary credit line of around €50 billion.
Such a request, leading to a binding set of commitments, would allow the ECB to intervene in the secondary market, buying unlimited amounts of short-term bonds to bring down Spanish borrowing costs. Madrid says it may not even need to draw on a credit line from the euro zone's rescue fund, or not right away.
Germany had so far said Spain does not need assistance, concerned about the impact it could have on other shaky euro zone countries such as Italy and loath to ask the Bundestag (lower house) to approve another bailout package.
But now it appears to have opened the way for Spain to proceed, and a formal request would likely come at a finance ministers' meeting on November 12, even if leaders discuss it first. A German official said on Tuesday it was not clear when Spain would ask, but aides were laying the ground for such a move.
If euro zone leaders address the issue, it is likely to push discussion of a banking union into the background, given the greater immediacy and market impact of what would be the fourth sovereign rescue since the crisis began in January 2010.
A Spain sovereign assistance programme would come on top of the €100 billion the euro zone made available in June to help recapitalise Spain's debt-laden banks, around 40 billion of which is expected to be used.
German push for 'currency commissioner'
German Finance Minister Wolfgang Schäuble threw his weight into the mix ahead of the summit, saying it was time for a leap forward in European integration and that ideas such as a super-empowered commissioner for budgets needed serious consideration.
"We must now make bigger steps in the direction of a fiscal union," said Schäuble, a long-time advocate of closer EU integration who is not shy about voicing his own views.
He said a "currency commissioner" should have the power to reject national budgets that were not in line with the euro zone's strict fiscal rules, without specifying whether such a figure should be entitled to impose penalties.
The model for the position would be the bloc's competition commissioner, whom Schäuble described as "feared in the whole world". The EU antitrust czar has sole authority to bar mergers, subject to retroactive judicial review by the European courts.
The German minister also called for more flexible voting arrangements in the European Parliament to accommodate closer integration between euro zone states.
Schäuble initially said Chancellor Angela Merkel was "somewhat more cautious" than him on these ideas but a government spokesperson said on Wednesday that they were in full agreement and "pulling in the same direction".
Schäuble's flurry of ideas, some of which have been floated quietly in the past, appeared designed partly to focus minds on what will be required if the euro zone is to forge much deeper links and better insulate itself from any future crises.
His comments reinforced a trend towards a two-speed Europe, with the euro zone looking to integrate at a much faster pace than the 10 countries outside the currency union — a message to EU-skeptical Britain and other euro "outs".
He may also have been trying to distract attention away from the establishment of a common banking supervisor, which he has sought since June to slow down and limit in scope.
Herman Van Rompuy, president of the European Council and chairman of EU summits, had intended to focus discussion on growth, employment and the banking union, as well as broader issues such as the future structure of the single currency bloc and the idea of setting up a separate euro zone budget.
All those items will be raised, but the time available to discuss them will depend on whether Spain and other immediate market-sensitive issues end up crowding out the agenda.