Spanish rescue draws closer as Cyprus buckles Spanish officials denied the claim but Mr Benyeto's comments have caused deep confusion. He contradicted a speech on Saturday by premier Mariano Rajoy, who vowed once again that Spain would recover under its "own strength." Mr Rajoy demanded intervention by the ECB to cap bond yields and warned the EU authorities that they too had to deliver on their side of the bargain as his country swallows austerity. One must insure that the euro continues to be the currency of our countries. If it is urgent to solve Spain's situation, it is equally urgent to solve the problems of the whole eurozone. Spain is one factor among many others in this situation. It is not the only one, and it is not the worst," he said, calling for an EU "fiscal authority" and use of the European Stability Mechanism (ESM) to recapitalise banks. Top EU officials are drafting a "master plan" for a Brussels summit this month but it will focus on the future shape of the EU in 10 years' time. The drafters are powerless in the face of the immediate crisis. Berlin has a de facto veto on all key decisions. The ECB has so far sat on the sidelines as spreads on 10-year Spanish bonds reached a record 496 basis points over Bunds. The ECB is wary of moral hazard but critics say it is a dangerous game for bureacrats to force democracies to their knees by switching intervention on and off. In this case it is spreading contagion to Italy and risks igniting a tinderbox. Ms Merkel is herself under massive pressure from Europe's Latin bloc and world leaders. Leaks of a teleconference call on Wednesday reveal that France's François Hollande, Italy's Mario Monti and US president Barack Obama launched a three-pronged attack, pressing Ms Merkel to drop Germany's veto on the use of EU rescue funds for banks. The trio repeated their demands three times with mounting tension. Each time she answered no, first in English, and then in German for precision, according to details obtained by Italy's La Repubblica. Germany does not want the fund to spend billions in exchange for collateral from ruined banks. I don't see why we should end up holding bits of bankrupt lenders," she reportedly told them. All three warned that if Spain is forced to request a sovereign rescue - as Germany demands - it will be deemed insolvent by markets. The EMU crisis will become much more dangerous. Critics doubt whether a surgical bail-out of €50bn to €90bn is possible. Alberto Gallo from RBS said Spain will need €370bn to €450bn to tide it through to 2014, pushing its debt to 110pc of GDP. A key reason is the cancerous precedent of the Greek haircut deal, in which private investors were left with all the losses. Once the ESM starts lending to Spain, others creditors are instantly pushed down the ladder or "subordinated." Losses will be larger if Spain ultimately needs to restructure. Stuart Thomson from Ignis Asset Management says this may well happen. He predicts haircuts of up to 50pc for Spanish bondholders. Any rescue must be huge enough to fund Spain's total debt needs for the foreseeable future. Theoretically, the EU bail-out machinery has deep pockets. Whether it can actually raise such sums from global investors - and cope with contagion to Italy at the same time - is untested. Gary Jenkins from Swordfish said half-measures are no longer enough. "We may be approaching the endgame where either the eurozone or the ECB takes action to stem the bleeding or the whole thing collapses," he said. Meanwhile, a Greek exit from the eurozone will be on the agenda if Athens fails to impose austerity measures required in its EU-IMF bailout deal, French Finance Minister Pierre Moscovici has said.