LONDON Spain will soon follow Portugal, Ireland and Greece in seeking an international sovereign bailout, say a slim majority of economists polled by Reuters just days after Madrid sought up to 100 billion euros to rescue its banks.
Thirty-five out of 59 analysts across Europe and the U.S. said it was "likely" or "very likely" Spain will need international help for its state funding in the next 12 months, with the remaining 24 describing it only as "unlikely".
That stood in sharp contrast with an April Reuters poll of economists and bond strategists that suggested just a one-in-four chance Spain will need a bailout.
Spanish state borrowing costs hit a euro-era record high on Tuesday, edging dangerously towards the 7 percent mark for 10-year government bonds - a rate analysts say cannot be sustained for long without succumbing to external aid.
Costs rose despite Sunday's rescue deal for ailing Spanish banks, worth up to 100 billion euros (80 billion pounds), while also reflecting huge uncertainty about this weekend's elections in Greece, which could decide whether it has a future in the euro zone.
Still, 37 out of 59 expected the currency union to survive in its current form for another year - albeit with a very weak economy given the huge obstacles Europe's leaders face in trying to resolve the two-year old sovereign debt crisis.
"It's not a question of whether the crisis will get worse before it gets better, but rather it must get worse before it gets better," said Richard McGuire, senior fixed income strategist at Rabobank International in London.
"It is only when the system is under threat that core politicians are sufficiently emboldened to push towards fiscal unity, the solution to the crisis in our view."
He pointed to two routes that would force leaders from the euro zone's biggest economies decisively into this endgame - either a Greek exit from the euro zone, which was not his base case, or a more comprehensive bailout for Spain.
However, the poll revealed a sharp divide between economists working for banks and research houses based in the euro zone, and those outside it.
Only five out of 24 economists from organisations based in the euro area thought it would not survive in its present form, compared with nearly half - 17 out of 35 - from institutions based mainly in Britain, North America, Scandinavia and Switzerland.
CONTAINMENT OR CONTAGION?
Financial markets acted initially with euphoria over the rescue package for ailing Spanish banks, which the European Central Bank said will help stabilise Spain's economy, the fourth largest in the currency union.
But that optimism soured quickly as worries emerged about how the deal would increase Spain's public debt.
Nearly three-quarters of analysts in the poll agreed the bank bailout will not soothe the wider euro zone financial system or protect it from further disruption emanating from Athens.
"The contagion risk does not solely depend on Greece," said Juergen Pfister, chief economist of BayernLB in Munich.
"Growth in the countries under stress, progress with fiscal consolidation and structural reforms and, last but not least, the outcome of the EU summit in late June - a vision for Europe - will play an important role."
Italy, the euro zone's No. 3 economy and widely viewed as too big to bail out, has also come under the spotlight in recent days. Austria's finance minister said Italy may need a financial rescue because of its high borrowing costs, drawing a sharp denial on Tuesday from the Italian prime minister.
A separate monthly poll showed economists had conflicting views on economic growth and interest rates in the euro zone.
While most felt the European Central Bank will likely keep rates on hold at least until the end of next year, even against the economy likely contracting 0.4 percent this year, there is a growing minority who say its next move will be to cut rates.
They also assigned a 40 percent probability the ECB will pump more vast quantities of cheap, very long-term loans into the banking system, after injecting around 1 trillion euros in three-year loans since December.
(Analysis by Snehasish Das, Ruby Cherian and Somya Gupta; Polling by Shaloo Shrivastava; Editing by Ruth Pitchford)