Borrowing costs for Spain are near their highest level since November ahead of an auction of 10 year bonds by Spain on Thursday.
The yield, or interest rate, demanded by investors to hold 10 year Spanish debt touched 6.1% earlier. They eased a little to stand at 6.07% this evening.
An interest rate above 6% is considered to be unsustainable for Spain if its government were forced to pay rates at that level for a prolonged time.
Borrowing by Spanish banks from the ECB hit a new record in March at €227.6 billion as they snapped up emergency cheap loans, figures showed on Friday.
The figures from Spain's central bank are a sign of weak confidence in Spain's troubled financial sector, with commercial banks turning to the ECB since they are struggling to borrow on interbank lending markets.
On Friday, the cost to investors of insuring themselves against a default by Spain on its debt hit its highest level since records began in 2004.
Spanish borrowing costs had fallen sharply since November when they peaked above 6.5%.
The European Central Bank's €1 trillion operation, through which it advanced three year loans to banks, has been widely credited with calming investor nerves and reducing the borrowing costs of indebted euro zone nations such as Spain and Italy.
Spain says no more budget cuts or tax increases this year
Spain's economy minister has ruled out any Greek-style debt rescue and says there are no plans for new tax increases or budget cuts this year, in an interview published today.
Spain is at the centre of a fresh outbreak of euro zone sovereign debt concerns as investors fear Madrid will fail to meet deficit-cutting targets at at time when the economy is tipping into recession.
Economy Minister Luis de Guindos said the country had no "Plan B" in case it needs to ask for an international rescue. "Spain is not going to ask for a rescue. No intervention will take place," he said in an interview with the El Mundo newspaper.
"A country needs a rescue or an intervention when its sources of financing are cut off. That is to say, what happened in Greece, Portugal and Ireland. That is absolutely not the case in Spain," De Guindos said.
In the first three months of 2012, Spain's Treasury had already raised 50% of its financing needs for the year, he said, and the banks had enough liquidity to make interest payments for the next two years.
"Spain has absolutely no financing problems or urgent needs." De Guindos said the government's 2012 budget, with spending cuts and tax increases of €27 billion, was credible and based on a realistic forecast for a 1.7% contraction of economic output for the year.
The government does not plan new budget tightening measures even if confidence in Spain deteriorates further, De Guindos said. "That would be incompatible with the medium-term approach we are taking," he added.
Asked whether the fiscal tightening for 2012 was complete with the measures already taken by the government, he said: "From the point of view of the budget, yes. That does not mean that later the government won't carry on taking measures to push more reforms in health or education, whose aim is to ensure the sustainability of those services in the medium term."
De Guindos blamed much of the financial market volatility on doubts about the euro currency.
He said there were three fundamental doubts about Spain: the regional governments' ability to meet deficit-cutting targets; the impact of austerity measures on economic growth when the jobless rate is 23%; and whether lower growth will hurt banks' balance sheets, already over-extended with loans made before a property bubble imploded in 2008.
Spain posted a public deficit of 8.51% of gross domestic product in 2011, missing the 6%target by a wide margin, in part because of regional governments failing to mop up the red ink. The government has promised to cut the deficit to 5.3% of GDP in 2012 and 3% of GDP in 2013.
Luis de Guindos said the regional governments required €50 billion in financing in 2012 and said they had problems borrowing that money from the markets. The central government would not allow any regional government to fail, he said, but in exchange for that support the regions would have to respect their deficit-cutting goals.
