By Dave Burridge, Economic Editor
Rumours have been rife today that Spain would ask for funds to bailout it’s flailing banking sector.
Spain has, however, denied these claims but has not ruled out the possibility in the future.
Spanish shares rose slightly upon the news.
The rumours spread as Spanish banks are finding it incredibly expensive to borrow money due to their debt ridden economy. The market interest rate they are charged are simply too high to be sustainable thus prompting markets to expect Spain to ask for help from the European Central Bank (ECB).
The Spanish government is not financially strong enough to be able to bail out its banks meaning the only choice would be for Spain to seek help from the ECB.
It seems that for now, however, the Spanish banks are capable of supporting their own weight.
In other Eurozone news, plans have been unveiled for legislation that will mean banks will no longer be bailed out by governments from 2014.
The legislation works by forcing banks to draw up recovery and resolution plans and allowing financial regulators to be more intrusive in banks that are weak or unstable. It will also allow governments to force banks to sell assets- overriding shareholders or creditor’s rights.
This new legislation is still distant and will be of little or no comfort for governments in Spain, Portugal and Greece.
Finally, David Cameron was last night on the phone to Barack Obama to discuss the ailing Eurozone ahead of his meeting with Angela Merkel on Thursday.
The debt crisis they discussed is one that continues to dominate economic headlines and any resolution to this crisis will only succeed with the passage of time.