Spain Denies Negotiations on Sovereign Rescue

Spain's government denied Friday that it had entered negotiations for a sovereign rescue, which would make it the largest victim so far of the Eurozone crisis.

Deputy Prime Minister Soraya Saenz de Santamaria repeated to journalists a denial issued earlier in the day in Brussels by a spokesman for European Commissioner for the euro Olli Rehn.

The spokesman, Simon O'Connor, told a news conference there was only one program being implemented for Spain, referring to a 100-billion-euro ($124 billion) banking rescue loan from the Eurozone.

"There are no negotiations under way for any other sort of program for Spain," he said.

After reading out that statement in a Madrid news conference, the Spanish deputy premier added: "I confirm it."

O'Connor said in Brussels, however, that political and technical talks over the crisis were going on all the time with Spain, which has the Eurozone’s fourth largest economy.

Spain's economy is more than twice the combined size of those of Ireland, Greece and Portugal, the three Eurozone countries to have received bailouts to date.

Investors increasingly believe that Spain will be forced to request a bailout for its economy as Madrid struggles to borrow money on the international markets at affordable rates.

The nation faces a crunch in October with major debt payments due: short-term debt repayments of 9.02 billion euros and long-term repayments of 24.158 billion euros.

Speculation is mounting that Spain may ask the Eurozone’s European Financial Stability Facility or incoming European Stability Mechanism to buy its newly issued bonds so as to bring down its spiraling borrowing costs.

In Brussels, a senior European source said European countries were considering a sort of "bailout-lite" for Spain that goes beyond the banking rescue.

"The option which seems to have the best prospect of being taken forward is not that of a full program, but the drawing-up of a Memorandum of Understanding with a view to a limited program of interventions on markets," the source said.

"There are no formal negotiations because there is no formal request from Spain," he said on condition of anonymity. "But there are ideas under consideration," he underlined.

Spanish Prime Minister Mariano Rajoy "appears to want to prepare public opinion" for just such a demand, the source said.