Current rates 'will become too high for Spain'

Spain will not be able to finance itself for much longer if rates remain at their current level.

This is according to prime minister of the troubled Iberian nation Mariano Rajoy, who stated ahead of the European Union (EU) summit tomorrow (June 28th) that funding is the country's "most urgent subject" to tackle.

Spanish ten-year government bonds have been trading at yields higher than 6.8 per cent.

If these reach seven per cent, they are considered unaffordable.

The yield on government bonds that are traded on the markets indicate the interest rates governments would be obliged to pay to borrow money.

Spain has formally requested funding to help its troubled banking sector, but the country has not yet been bailed out.

An agreement to support the nation last week saw eurozone countries shake hands on lending it as much as €100 billion (£80 billion) - cash that will not go via the government.

Economists are concerned about the rise in the country's sovereign debt as a result of using the nation's own channels rather the injecting the money directly into the banks.

Yesterday, EU authorities proposed a plan for the future of monetary union, which they hope will instill confidence in investors that they can safely lend to countries using the single currency and avoid the necessity of future bailouts.

Speaking to the Spanish parliament, Mr Rajoy said: "There are institutions and also financial entities that cannot access the markets. It is happening in Spain, it is happening in Italy and it is happening in other countries."

He observed the country's domestic measures are not enough to keep it afloat and Europe must play a part in helping the Iberian nation back to recovery.

At 11:00 BST, the euro was down in trading with the dollar, with €1 buying $1.24.

The single currency also lost ground versus the Chinese yuan, as €1 has slid to equal 7.94 yuan.