Spain says eurozone facing 'decisive hours'

[June 27, 2012]  MADRID (AP) -- Spain insisted Wednesday it will continue to push for European financial aid to be delivered directly to its troubled banks, rather than count as government debt, warning that these were crucial moments for the euro currency union.

The Spanish government has agreed to seek a rescue package from its eurozone partners of up to euro100 billion ($125 billion) for banks loaded with toxic assets after the collapse of a real estate bubble in 2008.

But under current rules, the money has to go through the government. The fear has grown that the government may be ultimately left to repay many of the banks' rescue loans and need a bailout of its own. As a result, investors are now demanding high interest rates to lend Spain money.

"I will continue to try to get direct recapitalization for the banks," Prime Minister Mariano Rajoy told Parliament.

It is not clear if a decision on the issue will be taken at the European Union summit in Brussels on Thursday and Friday.

Economy Minister Luis de Guindos told Parliament said he had held talks with eurozone colleagues Wednesday ahead of the summit.

"We face decisive hours in terms of the situation in the eurozone and the economic measures to be taken in Spain," he said

The interest rate for Spain's benchmark 10-year bonds -- an indicator of investor wariness -- was at 6.79 percent Wednesday, a rate considered unsustainable over the long term.

"The most urgent issue is financing," said Rajoy. "We can't continue for a long time to finance ourselves with these prices; there are many institutions and financial entities that don't have access to financial markets."

The Bank of Spain on Wednesday said the recession-stricken economy had slumped further in the second quarter and would likely post a sharper contraction than the 0.3 percent of the first three months.

The bank's June report said drops in consumer demand, car sales and industrial production "indicate activity has continued to diminish at a greater rhythm." Unemployment is at a staggering 24.4 percent.

Official second-quarter GDP figures are due to be published in July.

[Associated Press; By CIARAN GILES]

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