Even as Mario Draghi sweats under the spotlights that will undoubtedly be on the post-ECB meeting press conference, Spain's Prime Minister Mariano Rajoy will be busy on the sidelines ironing out the details of Spain's bailout with German Chancellor Angela Merkel.

The two leaders are expected to meet in Madrid at 12:00 London time and will then hold their own joint press conference before moving on to a meeting with business leaders from both countries, including DIHK (German Chamber of Commerce) president Hans Heinrich Driftmann and BDI (German Industrial Federation) Hans Peter Keitel, along with hundreds of German and Spanish businessmen.

The conference's focus is to be on opportunities for economic and business cooperation between the two countries.

Be that as it may, the market is expected to focus on any details that may hint at the assembled business leaders' bias as regards ECB bond purchases or Spain's bailout request.

Although investors expect news from Draghi today on the purchase of periphery sovereign debt from the likes of Spain or Italy, German officials have loudly criticized such a course of action.

It is against this context that Rajoy is expected to present Merkel with his plans for restructuring Spain's financial sector, along with a list of the austerity measures already implemented in order to convince the "euro leader" that Spain deserves more help.

Rajoy's reputation is at stake and, as a senior European diplomat pointed out to Reuters last Tuesday, "the worst thing that could happen would be for Spain to request aid only to have Germany block it".

On a more positive note, Merkel seems to be positively inclined towards the reform efforts that have been undertaken thus far by the government in Madrid. The Chancellor's spokesman Steffen Seibert has already described them as "remarkable".

Rajoy might therefore stand a better chance of getting his way than was the case for Greek Prime Minister Antonis Samaras, who Seibert warned not to expect "any significant decisions" before Merkel traveled to Athens at the end of August.

Nevertheless, no big steps are really expected to be taken in the most extreme short-term. That as both leaders wait with baited for today's ECB announcement. Furthermore, Merkel must wait for the German Constitutional Court to approve the ESM.

The legal 'green light' on the permanent bailout fund is scheduled for September 12th and media reports have suggested that Merkel will ask Rajoy to wait for that approval before requesting any financing.

On his knees ...

For the moment, one cannot help but remember the couple's boat ride together following the last G-8 meeting in Chicago. However, Madrid's only river -the Manzanares- barely deserves to be described as a large stream, nor would the city's tube make for the most romantic of settings, so the analysts' consensus is that Rajoy will opt for the veranda of the Moncloa Palace (Rajoy's official residence) to make his case.

Without a doubt Spain's PM will be looking for a firm commitment from his partner, praying that Merkel accepts his proposal.

Yet it remains to be seen whether she accepts or if she will ask for more time to think it over.

Jason Martin

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