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Spain's credit rating falls; bailout likely

Spain is under increasing pressure to find a quick way to save its troubled banking sector from collapse.

Politicians and investors around Europe are worried that the recession-hit country will not find the money to cover the toxic property loans weighing its banks down. The expectation now is that Spain's government will have no choice but to seek an international bailout to help it bolster its lenders.

The concerns have sent Spain's borrowing costs on the international bond markets to worrying levels -- close to the points where most market-watchers say a country cannot maintain its debt. Spain, which had an A credit rating, may need as much as $126 billion to bolster its banking system, compared with an earlier estimate of about $37 billion, U.S credit rating agency Fitch said Thursday. Fitch went on to downgrade the country's rating to BBB, two notches above junk, and warned that it faced further downgrades. In its most recent debt auction Thursday, Spain managed to raise $2.52 billion -- but at much higher rates than in previous bond sales.

Earlier this week, the country's finance minister, Cristobal Montoro, warned that the country was rapidly running out of ways to finance itself and that the "the door to the markets is not open for Spain." In his most explicit plea for Europe to come to Spain's aid, Prime Minister Mariano Rajoy told a Senate session the next day that Europe "needs to support those that are in difficulty."

Thursday, Rajoy for the first time didn't stick to his standard line that Spain has no intention of seeking outside help, and Germany, without mentioning Spain by name, gave its clearest hint so far that it thinks the country should tap the European rescue fund before its banks become too hot to handle.