The body is still reeling from two massive bailouts for Greece ($145 billion) and Ireland ($113 billion) as other member states -- Spain, Belgium and Italy -- are in danger of falling into the debt trap as well.

In a bid to prevent further fallout, EU leaders meeting in Brussels for a two-day summit are to discuss the look of a permanent stability mechanism for indebted countries, whether to increase the eurozone's $1.3 trillion bailout fund and the possibility of creating pan-European bonds to boost confidence in the euro.

The common currency for 16 eurozone members has come under renewed pressure after Spain's interest rate for government bond sales was raised because of doubts about the country's fiscal stability.

German Chancellor Angela Merkel, who leads Europe's largest economy, on Wednesday in Berlin vowed that no EU member "will be abandoned."

But she has been a vocal opponent of some of the emergency measures, namely an increase of the bailout fund and the introduction of euro bonds, an issue that divides the bloc roughly in half.

Under the current national bond system, countries that are at higher risk of defaulting must pay more interest to borrow money than economically sound nations such as Germany.

Introducing euro bonds would mean the interest rate will be the same for every member state and that the risk is shared. Compared to current rates, Germany would have to pay more, while the likes of Greece and Spain would pay less.

Merkel wants to hold the private sector accountable when banks default, refuses to hand over more powers to Brussels and wants rules to safeguard the bloc from excessive speculation that damages struggling economies.

Spain, meanwhile, has insisted its economy is stable, adding that it won't need bailout money. While its public deficit is manageable and its large private banks are healthy, an array of local banks, the so-called caixas, is in trouble because the banks lent excessively during the country's real estate boom.

Kathleen Brooks, research director at Forex.com, said Spain might have trouble getting financing down the road.

"Spain is the canary in the coal mine for the survival of the eurozone," Brooks told the BBC. "If it was to require a bailout the current facilities available ... would not be large enough to deal with it."

Ratings agency Moody's Wednesday said it was reviewing Spain's credit rating with a possibility to downgrade it.

earlier related report
Portugal has no funding problems: PM
Paris (AFP) Dec 14, 2010 - Portuguese Prime Minister Jose Socrates said his country can still raise funds from the markets despite the eurozone debt crisis because investors understand the reforms the government has introduced.

"We are doing what we need to do -- consolidating the budget deficit very quickly and very effectively on the basis of structural reforms," Socrates told the Financial Times in an interview Tuesday.

"Markets will understand this more and more," he said.

Portugal has come under increasing pressure in recent months after debt and deficit problems in first Greece and then Ireland led to EU-IMF bailouts when they could no longer raise fresh cash from the markets at sustainable rates.

The crisis drove speculation that Lisbon and possibly Madrid could be next in line although tensions have eased slightly since Ireland's rescue this month.

While Portugal has to cover 20 billion euros (26 billion dollars) in debt due by mid-2011, Socrates said Lisbon would have no problems in funding.

"Portugal has the necessary conditions to go on raising debt in the market," he told the FT.

"We have had no banking crisis or property bubble. Our only problem was an excessive budget deficit due to the global crisis and we are correcting that."

Socrates said government reforms, especially on pensions and social security reform, meant Portugal was doing better than other countries in stablising its public finances.

"Markets will increasingly understand that Portugal is doing what it needs to do and is ahead of most other countries in terms of budget consolidation," the prime minister said.

Finance Minister Fernando Teixeira dos Santos said Tuesday that Portugal could count on continued support from China, after returning from a trip to Beijing along with senior government debt officials.

"We have here a partner which will continue to support Portugal, as it already has," he was quoted as saying by the Portuguese news agency Lusa.

"We have made a major step in the reinforcement of our relations on all levels, on commercial ties as well on planned investments and in the area of financing," he said.

Concrete measures of support were not mentioned.

During a November visit to Lisbon Chinese President Hu Jintao pledged to help Portugal shed its fiscal crisis but made no firm promises regarding investments or purchasing Portuguese government debt.

The Portuguese parliament last month approved a budget to cut the public deficit to 4.6 percent of national output in 2011 from 7.3 percent this year.

Analysts say, however, that it might not be enough to reassure markets that the country will not need a bailout from the International Monetary Fund and the European Union like Greece and Ireland.

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