July 2 (Telegraph) -- Spain's debt crisis may force the country to tap the EU-IMF rescue fund over the next two to three months and set off a political storm, according a confidential report by the Bank of America Merrill Lynch.
"There is a serious risk that Spain have to make use of Europe's €750bn (£618bn) aid packet," said the document, obtained by Spanish newspaper Expansion. The bank declined to comment.
The report said it was not yet clear whether weaker states on the periphery of the eurozone will be able to raise money to fund their debt needs at viable rates on the global markets. Any request for a bail-out by Spain would be extremely controversial, potentially bringing down the government.
The bank said it was possible that Italy would also require a rescue or that there would be a total divorce between Germany and France, though these were viewed as "extremely unlikely"
outcomes.
Spain's premier Jose Luis Rodriguez Zapatero yesterday proclaimed "his full confidence in the strength and solvency" of the country after Moody's threatened to downgrade Spanish debt by up to two notches on the grounds that fiscal austerity would undercut growth. Moody's then twisted the knife deeper, cutting ratings on five Spanish regions.
Spain's treasury sold €3.5bn of five-year debt successfully, but at a stiff rate of 6.6pc.