‘Future of euro in Spain and Italy at stake’

“The future of the euro is going to be at play in the next weeks in Spain and Italy,” he told reporters. “I don’t know if we’re on the edge of the precipice, but we’re in a very, very, very difficult situation.”

Bank of Spain data showed 66.2bn euros were sent abroad in March, the most since records began in 1990. The money was going to savings accounts in banks in stronger economies.

The state of Spain’s banks is causing alarm throughout the eurozone, whose main concern over recent months has been propping up Greece. If Europe’s debt problems are not resolved, the future of the euro could be stake.

Spanish banks have been hit by bad mortgage loans. The government has pumped money into the country’s fourth biggest lender, Bankia, but needs to raise more money to keep it afloat.

It is finding it increasingly expensive to borrow money on the markets and may need help from the IMF and EU.

Spanish and Italian borrowing costs compared with Germany’s rose to the highest in the euro’s history this week, and Spain’s 10-year bond yields approached the 7 per cent level that pushed Greece, Ireland and Portugal into bailouts.

‘No bailout’

Mr De Guindos added: “Spanish banks are having growing difficulties accessing money markets mainly in Europe: in the US the money markets are very much closed to all European banks.”

The head of the International Monetary Fund, Christine Lagarde, met Spain’s deputy prime minister on Thursday and later denied reports it was considering contingency plans for a bailout.

“There is no such plan. We have not received any request to that effect and we are not doing any work in relation to any financial support,” she said.

The euro today fell to a low of $1.2312, its weakest since July 2010. The Spanish government also hopes to clear doubts on Friday about how it plans to ease financing problems among its 17 autonomous regions.

Treasury ministry sources said a way to back the regions’ debt would be agreed at the weekly cabinet meeting and figures showing they were on track to meet their spending cuts targets would also be released.