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Spain bites bullet and appeals to Europe for funds help

Spain dropped its opposition to external funding and for the first time appealed to Europe for help in overcoming its worsening financial crisis, after Germany proposed a "banking union" to stabilise the continent's economy and ease eurozone turmoil.

Madrid's call signalled a departure from the previous stance of Mariano Rajoy's conservative government, which had rejected the idea of external funding to assist the country in recapitalising its ailing banks because of fears that such a move would undermine market confidence in Spain.

However, Budget Minister Crisotobal Montoro appeared to break ranks with the Prime Minister when he made a direct appeal to European institutions to help shore up the country's banks. "The door to the markets is not open to us at the moment," he said, in an admission that Spain's borrowing costs were too high. "The future of the euro is at stake."

Without actually naming a figure, he told the broadcaster Onda Cero: "The banks don't need excessive amounts to recapitalise. That's why it's so important that the European institutions open up and help facilitate that figure because we are not talking about astronomical amounts."

Mr Montoro also agreed with the German Chancellor, Angela Merkel, and gave his backing to the idea of a European "banking union".

Until yesterday Spain had insisted that it did not need outside help despite estimates its banks need up to £72bn in loans to survive the crisis. Germany was reported this week to have put pressure on Spain to accept funding from the European Stability Facility to help it solve its banking dilemma. Madrid's reluctance to accept ESF funding has caused its borrowing rates to spiral. Last week Spain was forced to offer 6.7% interest rates on 10-year bonds - close to the 7% rate which forced Portugal and Ireland to accept ESF bailout funding in 2010 and 2011, respectively.

With no let-up in the Spanish crisis, Germany has also signalled a shift in its hitherto hardline approach.

£72bn

Estimated amount in loans Spanish banks need to survive crisis