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Spain Denies Bailout — So, Umm, Is a Bailout Close?

A fighting bull runs behind participants during the San Fermin running of the bulls on July 12, 2011 in Pamplona, Spain.
Pablo Blazquez Dominguez | Getty Images
A fighting bull runs behind participants during the San Fermin running of the bulls on July 12, 2011 in Pamplona, Spain.

Tell me if you recognize this pattern.

Last week, rumors circulated that the International Monetary Fund was in discussions to bail out Spain.

Spain's economic minister called such rumors "senseless." The IMF denied bailout talks were underway.

Over the weekend, Der Spiegel reported that "German Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble agree that Spain should be forced to accept bailout money from the European Financial Stability Facility (EFSF), the temporary euro bailout fund, to inject liquidity into the country's struggling banks. The two settled on the strategy last week. Last Wednesday, Schäuble pressured his Spanish counterpart, Luis de Guindos, to accept the outside funding."

But Spain is still insisting that it won't need a bailout.

If you recognize this pattern, it's not a case of illusory deja vu. It's just history repeating itself. And if history is any guide, Spain may ask for help in the next few months, if not weeks or days.

In the winter of 2010, Ireland was strenuously denying that it would require bailout of its banking system from the European Union.

"There is continuous talk going on backwards and forwards about the level of our debt, but the suggestion that that constitutes going to the IMF or the bailout is just irresponsible," Dick Roche, Ireland's minister for European affairs,said in a radio interview on November 15.

Less than a week later, Irish Prime Minister Brian Cowen officially requested aid from the EU and IMF.

Earlier that year, Greece went through the same dance. In January of 2010, Greece's prime minister was officially denying his country would need to be bailed out by the EU. He was still making those denials as late as March. But by late April, Greece was formally asking for assistance.

In short, European government leaders have a pattern of denying they need assistance, only to do an about-face later. In the meantime, they castigate everyone forecasting bailouts as irresponsible, and go about decrying rumor-mongers.

Perhaps Spain can avoid seeking assistance from the EU. But I wouldn't jump to any conclusions based on official denials.

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