Spain, thought to be in danger of needing a bailout if Portugal was rescued, was granted a reprieve on its bank support system.
On Sunday, according to a Reuters report, European Union (EU) regulators approved a six-month extension for the system until June 2011, saying, "The Commission found the prolongation of the measures to be in line with its communication on state aid to overcome the financial crisis."
That approval did nothing, however, to help Spain’s bonds, which on Monday saw spreads move to a euro-lifetime high against their German equivalents. The markets, spooked by fears of contagion despite the approval of an Irish bailout package on Sunday, punished nations it saw as potentially next in line for rescue.
Despite the nation’s relative economic health compared to weaker countries in the euro zone, Spain weighs heavily on investors because of its status as the euro zone’s fourth largest economy. Despite the fact that its banks are in better shape than those of Ireland, it is seen as being in potential bailout country due to its close economic ties with Portugal. Its size means that, if it did need rescue, the European Financial Stability Facility (EFSF) would take a huge hit—far more than the 85 billion euros being devoted to Ireland’s rescue.