THE future of the euro will be determined over the next few dramatic weeks, says the Spanish Finance Minister, Luis de Guindos.
''I don't know if we are on the edge of a cliff, but we are in a very, very difficult position,'' he said.
As new data showed Spain's unemployment rate reached a record 24.3 per cent, Spain's Budget Minister, Cristobal Montoro, reported that the country's regional governments, which kept the national budget deficit at 8.9 per cent last year, had balanced their budgets in the first quarter of this year.
But the minister said this was only because the central government had brought forward €5 billion ($6.4 billion) in payments to the most cash-strapped regions, and accepted that the task of reining in their deficits was far from over.
Mr Montoro also warned other European countries that if Spain were allowed to collapse without paying its debts then that would damage them, too.
''Who holds our external debt?'' he asked. ''You will understand that those who are most interested in things going well for Spain are the creditors. Or do you think they don't want to get their loans paid back? I can assure you that they do.''
Spain must raise €19 billion to save failed lender Bankia and also needs to find money to prop up regional governments, some of whom have been given junk status by ratings agencies, and as a result local authorities cannot raise their own funding.
But UBS Investment Research said there was now a consensus that the Spanish banking sector needed a recapitalisation of up to €100 billion. That might mean further state aid, or help from Europe's bailout fund. Spain's sovereign bond yields remain high with investors demanding 6.5 per cent interest on 10-year loans.
Germany, meanwhile, backed a European Commission proposal to give Spain more time to reduce its deficit to 3 per cent by extending the deadline from next year to 2014. A finance ministry spokesman, Johannes Blankenheim, said: ''The Spanish government is tackling with determination the necessary reform measures, and the German government is convinced that this determination will be mirrored on the markets.''
Guardian News & Media