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August 21, 2017

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Spain concedes that it might need 300-million-euro bailout: official

BRUSSELS -- Spain has for the first time conceded it might need a full EU/IMF bailout worth 300 billion euros (US$366 billion) if its borrowing costs remain unsustainably high, a eurozone official said.

Economy Minister Luis de Guindos brought up the issue with German counterpart Wolfgang Schaeuble in a meeting in Berlin last Tuesday as Spain's borrowing costs soared past 7.6 percent, the source said.

If needed, the money would come on top of the 100 billion euros already agreed to prop up Spain's banking sector, stretching the euro zone's resources to breaking point, and Schaeuble told de Guindos he was unwilling to consider a rescue before the currency bloc's ESM bailout fund comes on line later this year.

"De Guindos was talking about 300 billion euros for a full program, but Germany was not comfortable with the idea of a bailout now," the official told Reuters.

"Nothing will happen until the ESM is online. Once it is operational we will see what the borrowing costs for Spain are and maybe we will return to the question," the official said.

Spain has repeatedly said it would not need to follow Portugal, Ireland and Greece in seeking a full bailout. Asked about the source's comments, a government spokeswoman said on Friday: "We strongly deny any such plan. This possibility (of a 300-billion-euro rescue for Spain) has not been looked at and has not been discussed."

As Schaeuble and de Guindos were meeting on Tuesday, Spanish borrowing costs reached their highest level since the country adopted the euro, hitting 7.64 percent for 10-year bonds — a level at which Spain cannot sustainably borrow from the markets.

But on Thursday European Central Bank President Mario Draghi said the central bank was ready to act to bring down Spanish yields and the 10-year yield fell to 6.88 percent.

A second euro zone official said Spain could manage without a bailout, but had made bad communication mistakes which had unnerved investors. Asked if Madrid needed a bailout the second official said:

"In pure arithmetic terms no, if interest rates were commensurate with what I consider a sustainable situation."

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