New bail out fears

MARKETS tumbled this week as investors looked beyond the Irish bailout, focusing instead on fears that the European debt crisis is spreading to Spain and Portugal.

Despite PM Jose Luis Zapatero’s best efforts to shore up confidence in the Spanish economy, investor concern continued to rise as the euro slumped to a two-month low against sterling and the US dollar on Monday.

Nouriel Roubini, the New York University professor – known as Dr Doom for predicting the global financial crisis – suggested it is quite likely Portugal will be next in line for a bailout.

But he added the big problem lies with Spain which is “too big to fail and too big to save.”

He said: “The big elephant in the room is not Portugal but, of course, it’s Spain. There is not enough official money to bail out Spain if trouble occurs.”

It comes after Zapatero met with the country’s top 37 business leaders over the weekend in a bid to establish a joint commitment to economic reform.

Following the meeting he said: “This is a day that has strengthened confidence. We have reinforced our commitment to the economic stability of Spain and to recovery.”

And last week he ruled out any possibility that Spain might require a bail out.

But the cost of insuring Spanish and Portuguese debt against default has soared to record highs as the EU’s 85 billion euro Irish rescue package failed to soothe fears about the state of the Iberian economies.

And there is widespread concern over Spain’s ability to bring down the euro- region’s third-highest budget deficit.