Greece’s political stalemate is already splashing over onto Spain.
On Wednesday, the Spanish Prime Minister Mariano Rajoy said Madrid if facing trouble borrowing enough as the interest rate – or yield – it is having to pay to sell its government bonds shoots up.
Spain’s yields are back up near the levels that led to Greece, Portugal and Ireland having to be bailed out.
Calling it a very difficult situation, Rajoy said: “The borrowing rate has increased a lot and that means it is very difficult to finance ourselves at a reasonable price.”
“In Spain I believe we are taking the measures we have to take. We must continue cutting public spending,” Rajoy said.
He added Europe also had to take measures but Spain should concentrate on getting its house in order instead of asking for help from the European Central Bank.
Rajoy told reporters it would be a “major error” if Greece were to leave the eurozone.
He said Spain’s banks are also having difficulty in the markets and so are not making loans.
Rajoy has passed two different reforms to try to clean up the country’s banks, but investors fear more problems.
Shares in the most troubled, Bankia, tumbled further on Wednesday after the Bank of Spain told it to come up with a better plan to deal with the mass of bad property loans it is holding.
The government acquired 45 percent of Bankia last week through converting an earlier 4.5 billion euro rescue loan to parent company BFA into shares and is expected to merge Bankia with BFA to control both entities.
The government is also expected to pump another 10 billion euros of loans or cash into Bankia to cover the hole left by bad loans.
“The Bank of Spain, in view of the events of the last few weeks and the growing uncertainty about the future of the entity, has demanded the presentation of a strengthened plan,” Bankia said in a statement to the stock exchange regulator.