Europe shaken by fear Spain will need full bailout

FRANKFURT, Germany (AP) -- Europe is on the brink again. The crisis over too much debt in the 17 countries that use the euro flared dangerously on Monday.

Fears that Spain was next in line for a full-blown government bailout intensified following a weekend of bad news about Europe's fourth-biggest economy. Madrid's borrowing costs on its 10-year bonds -- an indicator of market confidence in a country's ability to manage its debt -- hit an alarming record of 7.45 percent during morning trading, pushed up by reports that the country's indebted regions might join its banks in requesting expensive bailouts.

Stocks slid continent wide. Germany's DAX fell 1.7 percent. Britain's FTSE was off 1.7 percent. The French CAC 40 was off 2.0 percent. The euro fell to $1.2118.

Yet it was far more than just Spain's struggle.

Borrowing costs also rose in Italy, which has been caught up in fears that it may soon be pushed into asking for assistance. Italy's economy is stagnating and markets are worried that it may soon not be able to maintain its debt burden of (euro) 1.9 trillion ($2.32 trillion) -- the world's third-largest bond market after the United States and Spain.

Greece, already into its second bailout and struggling to keep its membership in the currency bloc, faces tense negotiations with its international creditors who are losing patience with the country's attempts to reform its economy.

Ireland, Greece and Portugal have already taken bailout loans after they could no longer borrow affordably on bond markets. Yet those countries are tiny compared to Italy and Spain, the third- and fourth-largest economies in the eurozone. Analysts say a full bailout for both would exceed the other eurozone countries' resources.

The markets fear the prospect of double-disaster: Spain needing a bailout that would strain the eurozone's bailout funds, and a possible Greek abandoment of the euro that could spread even more fear across the eurozone.

Right now, Spain has received a commitment of up to (euro) 100 billion from other eurozone countries to bail out its banks, which suffered heavy losses from bad real estate loans.  Eurozone finance ministers signed off on the aid Friday and said (euro) 30 billion would be made available right away. But that incremental step cut little ice with investors. The speculation is widespread that the government may need its own, direct bailout.

On Saturday, Spain's Foreign Minister Joseuro Manuel Garceuroa Margallo pleaded for help, saying that only the European Central Bank could halt the panic. But the ECB has shown little willingness to restart its program to purchase the government bonds of financially troubled countries. The central bank has already bought (euro) 200 billion in bonds since May 2010 but little real impact on the crisis.

"Events since Friday have been a clear wake-up call to anyone who thought that the Spanish bank rescue package had bought a calm summer for the euro crisis,'' analyst Carsten Brzeski said. "Greece is back... This does not change the economic analysis of the impact of a possible Greek exit but it shows that patience in at least the biggest Eurozone country is reaching its limits.''

In the case of Greece, the country is dependent on foreign bailout loans to pay its bills.  A cutoff of aid over its inability to meet the loan conditions would leave it without any source of financing -- and could push it to exit the euro so it can print its own money to cover its debts.

Germany's economy minister, Phillip Roesler, said the prospect of Greece leaving the euro was now so familiar it had "had lost its horror'' and that he was skeptical Athens would meet conditions for continuing rescue money.