Fears of Spanish banking collapse prompts meeting of world finance leaders

FINANCE ministers from the words biggest seven economies are to hold an emergency meeting today as fears over the Spanish banking system grow.

The ministers from the G7, including Chancellor George Osborne, will be discussing how to prevent a collapse of the Europea Union’s fourth biggest economy which could trigger a collapse of the euro zone and a world financial crisis worse than the one which brought down RBS and HBOS in 2008.

Their discussions come as the Portuguese government is also preparing to rescue its banking sector with a 6.6 billion euro package.

Similar moves are also expected to happen in Italy and top of the ageda today will be discussions over creating a euro zone banking union which would further integrate the 17 countries and see their debts and liabilities shared with greater EU scrutiny over budgets and fiscal scrutiny.

The talks come after Spanish treasury minister Cristobal Montoro sent out the dramatic distress signal in a radio interview about the impact of his country’s banking crisis on government borrowing, saying that at current rates, financial markets were effectively shut to Spain.

“The risk premium says Spain doesn’t have the market door open,” Montoro said on Onda Cero radio.

The country, which enjoyed rapid growth after it joined the euro at its launch in 1999, is beset by bank debts triggered by the bursting of a real estate bubble, aggravated by overspending by its autonomous regions.

The risk premium investors demand to hold Spanish 10-year debt rather than the German equivalent hit a euro era high of 548 basis points on Friday, on concerns that Spain’s fragile banking system and heavily indebted regions will eventually force it to seek a Greek-style bailout.