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Spain downgraded, Europe debt crisis widens

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BERLIN -- Europe's debt crisis spread its contagion to another country Wednesday when a major credit agency downgraded Spain's credit rating, even as Germany grudgingly moved closer to bailing out Greece from imminent collapse.

Chancellor Angela Merkel said Germany would speed up the approval process and could have its share of a euro45 billion joint bailout from other euro countries and the International Monetary fund for Greece rushed through parliament by next week.

That would beat a May 19 deadline when Greece has debt coming due -- debt it can't pay without the money promised.

"It's absolutely clear that the negotiations between the Greek government and the European Commission and the IMF have to be accelerated now," Merkel said ahead of a meeting with IMF head Dominique Strauss-Kahn. "We hope that they will be completed in the next days."

Merkel's remarks and a promise from Finance Minister Wolfgang Schaeuble that the package could be signed, sealed and delivered -- provided Greece promised to tough austerity measures -- helped shore up confidence in the markets that the country would not suffer a disastrous default that would make borrowing more expensive for governments across Europe.

But the downgrade for Spain and a lack of clarity about how much money Greece will really need unsettled investors again -- the IMF's managing director Dominique Strauss-Kahn would not confirm reports he had told German parliamentary deputies that Greece would need euro120 billion over several years.

A lot is at stake -- some say that the very future of the euro project hangs in the balance. At the very least, a Greek debt default that could also tear holes in the balance sheets of European banks holding Greek bonds.

More broadly, growing worries about shaky government finances in Europe could force indebted governments to pay more and more of their budgets to cover interest costs, crimping spending and stimulus for the economy and pushing them to increase taxes. That could make it harder for Europe to maintain its shaky economic recovery.


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