Spain said Wednesday that it had no need of a full-blown bailout even though its borrowing costs were hovering near euro-era records and a vast rescue loomed for its stricken banks.
Fears mounted among investors that punitive borrowing rates could eventually topple the eurozone’s fourth-largest economy, forcing an international rescue that would dwarf those mounted for Greece, Ireland and Portugal.
Spain’s eurozone partners agreed on June 9 to lend up to 100 billion euros ($127 billion) to save banks laden with bad loans extended during a real estate bubble that imploded in 2008.
But Madrid refuses to consider this a rescue, and dismisses talk of a broader bailout.
Madrid is expected to transmit an official request for the aid to its partners at a eurozone finance ministers’ meeting in Luxembourg on Thursday, a European Union diplomat said in Brussels.
The size of the request will depend on two independent audits on troubled Spanish banks that are expected to be finalized on Thursday, one from the German firm Roland Berger, the other from the US firm Oliver Wyman.
Despite the Spanish banking rescue deal and weekend Greek elections, which averted the immediate threat of Athens leaving the eurozone, debt markets have punished Spain.
The yield on Spanish benchmark 10-year government bonds shattered the 7.0-percent barrier on Monday for the first time since the creation of the euro in 1999, pushing above 7.2 percent.
By late afternoon Wednesday, the yield had relaxed a little to just over 6.8 percent, still a rate regarded as unsustainable for the state over the longer term.
The Madrid stock market also took a breather, with the IBEX-35 index rising 1.53 percent to 6,796.1 points.
Spain managed to raise 3.04 billion euros in an auction of 12- and 18-month notes on Tuesday but it had to pay sharply higher borrowing rates of more than five percent a year.
The battered economy, which is in recession with a 24.4-percent jobless rate, faces a second major test on Thursday when it seeks to raise up to two billion euros in an auction of two-, three- and five-year bonds.
Spain’s budget minister hailed a Group of 20 summit in Los Cabos, Mexico, where leaders issued a statement saying they welcomed both Spain’s plan to recapitalize the banks and the eurozone’s loan.
The leaders of Spain, Italy, France and Germany meet in Rome on Friday to thrash out a common position on the debt crisis ahead of a full European Union summit in Brussels from June 28-29.