(AFP) Spain was back in the firing line on the markets on Monday as eurozone finance ministers prepared to follow up on measures agreed at a summit late last month to tackle the debt crisis.
The first issue of business when ministers gather from 1500 GMT is how to help Spain's stricken banks after a "breakthrough" June 28-29 EU summit promised them direct funding once a new single EU bank regulator is set up.
The promise sparked a strong global market rally in the days immediately after as direct funding from Europe would keep the money off the government's books and so not add to Spain's already heavy debt burden.
But as doubts emerged over how and when the deal can be implemented, sentiment has turned negative, with the new bank regulator not expected to be in place until next year.
Spanish benchmark 10-year borrowing costs on Monday jumped back above the 7.0 percent danger point, and Italy was under pressure too, sparking fresh speculation they could follow Greece, Ireland, Portugal and Cyprus in needing bailouts.
"All eyes will be on the meeting ... today to put a halt to the one-step-forward, two-step-backward discussions on the European sovereign debt crisis," ING analysts said in a client note.
The summit accord on direct recapitalisation of the banks was important but since then, "various barriers have been put up ... to undermine (market confidence) in (the) near term feasibility of such a solution," they said.
A European Commission spokesman insisted on Monday there was no room for confusion.
He said that bank recapitalisation via the new bailout fund, the European Stability Mechanism, in the case of Spain would not require any guarantees from the state.
This formed the "cornerstone" of the European Union summit agreement on the banks, he added.
At the summit, leaders also agreed to make it easier for ESM to help states in trouble but analysts were cautious that Monday's meeting of the 17 eurozone finance ministers would produce the progress needed to keep sceptical investors onboard.
BNP Paribas bond strategist Patrick Jacq said that investors doubted that Spain and Italy can stabilise their public finances, especially as the economic situation worsens.
"From now on the two lifelines represented by the European summit (and a European Central Bank rate cut last week) ... are behind us. The market does not expect much progress at the Eurogroup meeting," he added.
Reflecting the turn in sentiment, Spanish Prime Minister Mariano Rajoy announced on Saturday that he would take additional steps soon to cut the public deficit and called for quick progress on the summit agreements.
"What will really determine their success is that they turn into concrete realities, in a supple, quick and effective way," Rajoy said, adding: "Europe must fulfill the accords as swiftly as possible."
French Finance Minister Pierre Moscovici said Monday's meeting would "translate into action" the summit decisions but added that there would be another gathering "in July, on July 20 I think."
German Finance Minister Wolfgang Schaeuble, however, played down the prospects that Spain would get help for its banks anytime soon, insisting on the quid pro quo of tighter overall regulation first.
"Before direct aid is given to the banks, there must be a common banking supervisor," El Pais quoted Schaeuble as saying. "But this body will not start functioning this year. That is not very realistic."
Greece meanwhile has asked for more time on its latest debt bailout, saying it needs some slack on the tough terms so as to ease the pressure on an economy stuck deep in recession for a fifth year.
Helping remove once source of uncertainty, the new Greek government comfortably won a confidence vote late on Sunday on its programme.
Monday's meeting is also expected to discuss who should succeed Luxembourg's Jean-Claude Juncker, due to step down on July 17, as head of the eurozone finance ministers group.
Moscovici says France wants Juncker to stay on, until a "possibly more lasting solution" could be found to the debt crisis.
He discounted a German weekly Der Spiegel report that Paris and Berlin have reached a compromise whereby Schaeuble would head the group next year, with Moscovici following in 2014.
And also on the agenda of the talks will be a request for a rescue from Cyprus, who called for help as it took on the prestigious six-month EU rotating presidency.