Spain rescue plan talk ups fears of contagion

There were renewed fears of debt contagion across Europe today after reports that the EU was preparing a rescue package for Spain in case it asked for a bailout to help deal with its massive national debt.

A spokesman for the Spanish government denied the claim, saying: "This is a lie. There's no rescue. There's nothing asked for, nor will there be, nothing, but nothing. I don't know where they got this from."

But Emilio Boton, chairman of Spanish banking giant Banco Santander, admitted the country needed to act "urgently" on reforms, although he added the current measures to cut the deficit were "going in the right direction".

Boton also said he thought concerns about Spain's financial position had been "blown out of proportion".

Last month Spain's parliament passed a 15 billion (£12.3 billion) austerity package by just one vote. It is trying to cut Spain's public deficit from 11.2% of GDP last year to 9.3% by the end of this year and 3% in 2013.

It has been hit hard by contagion concerns in the wake of the 110 billion bailout of Greece by the EU and International Monetary Fund.