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Germany 'Refuses Spanish Bailout Request'

(c) Sky News 2012

Hours after it was confirmed that unemployment in Spain had reached a new record high, it was claimed the country had raised the prospect of it securing a 300bn euro (£235bn) bailout.

The news agency Reuters, citing comments by a eurozone official, said the idea was floated by Spain at a meeting with German officials but it was dismissed by the Germans on the grounds that the European Stability Mechanism (ESM) bailout fund was not yet in place.

Spain moved quickly to stamp on the report.

A government spokeswoman said no such discussion had taken place and it "strongly denied any such plan".

But such a move would come as little surprise to the markets amid the country's dire debt crisis.

Spain's National Statistics Institute confirmed the jobless rate rose to 24.6% in the second quarter of the year from 24.4% - a result of firms shedding more jobs as fears of a prolonged recession grow amid a lack of confidence.

The figures confirmed that almost a third of all those unemployed in the euro area are in Spain: 5.7 million are without jobs in the country; and 53% of Spain's eligible workers aged between 16-24 do not have a job.

The latest government projections suggest Spain's recession, which began in the first quarter of 2012, will continue into next year while unemployment will remain above 22% until 2015.

It is a high price the Spanish people are paying for the collapse of a property bubble which left banks saddled with huge debts.

It was that exposure to bad loans that crippled Spain's banks - forcing the country to seek a 100bn euro (£73bn) rescue for its lenders.

Spain's ability to borrow money on the bond markets has become so hazardous that the country's risk premiums struck fresh euro-era record highs this week.

Should the cost of servicing its debts remain unsustainable, Madrid would be forced to tread the same sorry path as Greece, Ireland (Xetra: A0Q8L3 - news) and Portugal and seek a state bailout.

The Spanish government maintains it has no plans to make such a plea - despite its soaring borrowing costs.

While the yield on its 10-year bonds has fallen back below the critical 7% level in recent days, it was as high as 7.7% earlier this week as investors demanded a higher risk premium amid growing evidence that a bailout was inevitable.

It was a pledge by European Central Bank (ECB) chief Mario Draghi to do all within his remit to stabilise the euro crisis that eased the immediate pressure but markets remain nervous.

There is speculation the ECB may be prepared to buy Spanish and Italian debt to ease their borrowing costs.

The key factor currently dragging on Spain is the lack of firepower at its disposal to bolster economic growth.

The deficit-busting austerity demanded of it to save cash is being pressured further by cash-strapped regional governments demanding bailouts of their own from central funds.

With fewer people in work, the more financial support Madrid needs to find as tax revenues fall.

Spain can usually rely on the summer tourist season to bolster revenues and temporary jobs - especially among the young - but analysts say such is the drive to save money amid the wider crisis, firms are reluctant to hire as many consumers are unable to spend.

Such is the anger over their predicament, hundreds of thousands have taken to the streets to protest in recent months.

Economist at Capital Economics Ben May said in reaction to Friday's jobless figures: "Things are only going to get worse."