Mariano Rajoy

Peter Spiegel

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Spain's King Felipe VI, left, receives Mariano Rajoy on Friday amidst coalition talks

At the height of the eurozone crisis, it almost seemed on Brussels summit days that the EU gathering itself was not the most important meeting in town. Many focused instead on the pre-summit gathering of Europe’s centre-right political family, known as the European People’s party (EPP).

For a time, that assembly included not only the leaders of the Franco-German power axis (Angela Merkel and Nicolas Sarkozy), but also of the eurozone’s two other large economies (Spain’s Mariano Rajoy and Italy’s Silvio Berlusconi, and then Mario Monti). Almost every country under siege was there, too, including Portugal (Pedro Passos Coelho), Ireland (Enda Kenny), Cyprus (Nicos Anastasiades) and of course Greece (Antonis Samaras). For good measure, two of the most important non-eurozone countries were also represented (Poland’s Donald Tusk and Sweden’s Fredrik Reinfeldt).

But after another weekend of fast-moving developments in Spain, when Mr Rajoy essentially gave up on his efforts to retain the premiership, that lineup could easily be reduced to Ms Merkel and a handful of leaders viewed either as quasi-pariahs (Hungary’s Viktor Orban) or far from the EU’s main power centres (Mr Anastasiades, Mr Kenny and Bulgaria’s Boyko Borisov). Read more

Peter Spiegel

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Mr Mas congratulates Mr Puigdemont after Sunday night's election in Barcelona

It’s been three weeks since Spain’s inconclusive national elections left the country in an uncharacteristic political stalemate. As one of the last remaining EU countries dominated by two centrist parties – and a two-party system where leaders have some of the strongest tools anywhere to impose strict discipline on backbenchers – it has normally been clear on election day whether the centre-right Popular party or centre-left Socialists had a majority in the 350 congress of deputies. But for the first time since it returned to democracy, neither of the country’s two largest parties secured more than 30 per cent of the vote in the December 20 contest, and the second-place Socialists (who polled 22 per cent) have repeatedly refused to join a grand coalition with the Popular party (28.7 per cent) of Prime Minister Mariano Rajoy.

That might all change this week because of some fast-moving developments in Catalonia which, until now, looked headed towards a re-run of regional elections in March. First, Catalonian independence leader Artur Mas, whose Junts pel Si coalition won the regional elections in September, unexpectedly stepped down as leader on Saturday, a week after the far-left pro-independence CUP party vowed not to join in a coalition with Mr Mas to govern the region. Mr Mas’ resignation cleared the way for his less controversial ally Carles Puigdemont to take over Junts pel Si, and on Sunday Mr Puigdemont was voted leader of Catalonia in a special session of the regional parliament.

That decision could set off two more unprecedented moves that are likely to dominate Spanish political debate this week: the Socialists may now think again about joining Mr Rajoy – if not in a grand coalition at least in support of a Rajoy-led minority government – as a way to create an anti-independence united front in Madrid. And the Catalonian government is likely to move more quickly towards creating all the trappings of independence, including a central bank and tax authority. Last night, Mr Rajoy warned darkly that he had “given instructions” to prevent any illegal act from going into law in Catalonia. “I am going to defend democracy in all of Spain,” he said. Read more

Peter Spiegel

Madrid police stand guard outside Bankia, the troubled Spanish bank, during a protest Saturday.

In talking to senior officials about plans for a Spanish bailout for our story in today’s dead tree edition of the FT, several steered us to the seemingly overlooked bank recaptialisation guidelines for the eurozone’s €440bn rescue fund that were adopted last year.

Those six pages, available for all to see on the website of the rescue fund, the European Financial Stability Facility, make clear European leaders were contemplating exactly the situation Spain now finds itself in: having done the hard work on fiscal reform, but suffering from a teetering banking sector that needs to be recapitalised.

The important thing to note in the current context is that the EFSF guidelines, adopted after more than a year of fighting over whether the fund should be used for bank rescues at all, allow for a very thin layer of conditionality for bailout assistance if the aid goes to financial institutions – notably, it foresees no need for a full-scale “troika” mission of monitors poking around in national budget plans. That’s something the government of Mariano Rajoy has been demanding for weeks. Read more