Spain was on Friday trying to ward off a European Union-led financial rescue, with officials and analysts calling on Europe to urgently intervene to ease market pressure on the eurozone's fourth-largest economy.
With a key Greek parliamentary election on Sunday, "we are now making history (of the euro) and the EU will need to act in the coming days and weeks," government sources said.
"This is not a problem of Spain, but of Europe," said Antonio Argandona from IESE business school.
The yield for Spanish 10-year bonds dropped slightly on Friday, but nevertheless remained close to the 7-per-cent mark above which the country's borrowing costs will "not be sustainable in the long term," as Economy Minister Luis de Guindos admitted on Thursday.
The situation raised the risk of Spain needing to follow Greece, Ireland and Portugal in seeking a bailout from the EU and the International Monetary Fund.
But Spain has a much bigger economy, and there was concern that the dimensions of its eventual rescue could deal a fatal blow to the euro, along with a possible Greek exit from the eurozone.
Madrid is also concerned that a rescue would stigmatize it and place it under draconian surveillance by the EU and IMF.
Prime Minister Mariano Rajoy's government has slashed spending and enacted labour market and banking sector reforms, as advised by the EU and IMF, but that has failed to reassure investors about Spain's solvency.
An EU plan to inject up to 100 billion euros (126 billion dollars) into Spain's ailing banks to calm markets has had the opposite effect.
Investors interpreted the move as piling up more debt and deepening Spain's budget deficit, which stood at 8.9 per cent in 2011.
Spain's public debt already increased by 5.4 per cent to 72 per cent of gross domestic product in the first quarter, according to figures released by the Bank of Spain on Friday.
Madrid's borrowing costs "will not go down if there is no reaction from Europe," Argandona told dpa.
Markets were concerned about a lack of clarity on Spain's bank bailout conditions, Argandona said.
The EU should clarify as soon as possible how much money exactly the banks will need, at which interest rate it will be lent, within which time frame the loans must be paid back, and which EU financial stability mechanism the funds will come from, according to the analyst.
He called for a "formal declaration" from the Eurogroup panel of eurozone finance ministers.
The bank bailout conditions were expected to become clearer once two external audit companies hired by the government issue their conclusions on June 21.
Spanish politicians have also stressed the need for Europe to intervene, with both government and opposition representatives urging the European Central Bank to shore up the euro by buying eurozone debt.
"If the ECB injects money in an unlimited manner ... the problem will be solved," said Francisco Gonzalez, president of Spain's second-largest bank BBVA.
Others joined Rajoy in calling for more EU integration in the fiscal and banking sectors.
The monetary union "cannot be carried out without the political, fiscal and financial union advancing at the same pace," the daily El Mundo said in an editorial.
"If (Europe) does not do anything," Spain's next debt sale on Tuesday will fail and "we will need to go to Europe to ask for a rescue," Argandona said.
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