ISTANBUL // The crisis in the euro zone took another turn for the worse yesterday when an emergency session of the Group of 7 leading industrial countries discussed Spain's deteriorating financial position.
An impromptu telephone conference call between finance ministers and central bank heads came after the Spanish budget minister Cristobal Montoro called for outside support for the first time to tackle the debt problems of the country's banks. "European institutions should open up and help us achieve, help facilitate, that figure [of financial assistance] because we're not talking about astronomical figures," Mr Montoro told a Spanish radio station.
"What we need is for the European institutions to get going and seek that bank recapitalisation through those measures," he added, in an apparent reference to a trade-off between closer euro-zone financial integration and a bailout for Spain's beleaguered banks.
Mr Montoro's comments revived speculation that Madrid was about to ask Europe for financial aid.
Estimates that Spanish banks need €40 billion (Dh182.91bn) in recapitalisation funds have been dismissed by some bankers as far too low, with €90bn a more realistic amount.
Last month, Spain nationalised Bankia, a group of savings banks, and said it still needed an extra €19bn of funds. In addition to the turmoil in Spain, there was further evidence of a deteriorating economic outlook for the single-currency bloc, with the release of data showing private sector trade activity fell across the region, even in Germany.
The purchasing manufacturers' index (PMI) for last month, regarded as a key indicator of economic activity, showed euro-zone activity as a whole was still shrinking.
"Companies report business activity to have been hit by heightened political and economic uncertainty, which has exacerbated already weak demand," said Chris Williamson, the chief economist at Markit, a London research company that compiles the statistics.
"While Germany is contracting only marginally, alarmingly steep downturns are evident in Spain, Italy and now also France."
The French foreign minister, Laurent Fabius, said a solution to the euro-zone crisis should be found "through the mechanisms of a banking union, which is something we favour".
But Germany, Europe's strongest economy, is not in favour of such a solution as it might involve German banks bailing out weaker rivals.
The euro-zone crisis dominated proceedings at the World Economic Forum (WEF) for the Middle East, North Africa and Eurasia, which began in Istanbul.
Egemen Bagis, Turkey's minister for EU affairs, said the crisis "can be resolved, but Europe is still in the process of dealing with it". He added Turkey's application for membership of the EU was going ahead.
"We would join the EU tomorrow but as far as the euro is concerned we will look at all our options," he said.
Stephen Kinnock, the WEF's director for Europe and central Asia, said a collapse of the euro zone was a "worst-case scenario and some form of currency union will survive".
The WEF published its Europe 2020 Competitiveness Report, which rated European countries according to their economic health. Greece, Bulgaria and Rumania were bottom of the rankings, in contrast to top-placed Nordic countries of Sweden, Finland and Denmark.
