"A bail-out would not be the apocalypse," said José María Beneyto, foreign affairs spokesman in Spain's parliament. "You have to live with it. We have got to escape this or we'll go mad worrying about bonds spreads."
 

Mr Benyeto accepted that it would mean cuts in salaries and pensions dictated by a Troika from the EU, the European Central Bank and the International Monetary Fund. "Portugal is living with it relatively passively, and Ireland, too," he said.
 

The shift came as Cyprus edged closer to a bail-out after President Demetris Christofias said his country had been engulfed by large exposure to Greece. "I don't want to absolutely exclude it," he said.
 

Russia has effectively shored up Cyprus over the past two years but rising defaults in Greece have proved overwhelming. The Cypriot banking system is nine times the country's GDP, with assets of ?157bn (£127bn). It has been called the "Iceland" of the South.
 

Germany's Spiegel magazine reported that Chancellor Angela Merkel is actively pushing Spain into the arms of the EU bail-out machinery, concluding that Madrid cannot hope to tap the open market for the estimated ?50bn to ?90bn needed to recapitalise banks.
 Spanish officials denied the claim but Mr Benyeto's comments have caused deep confusion. He contradicted a speech on Saturday by premier Mariano Rajoy, who vowed once again that Spain would recover under its "own strength".

Mr Rajoy demanded intervention by the ECB to cap bond yields and warned the EU authorities that they too had to deliver on their side of the bargain as his country swallows austerity.
 
"One must insure that the euro continues to be the currency of our countries. If it is urgent to solve Spain's situation, it is equally urgent to solve the problems of the whole eurozone. Spain is one factor among many others in this situation. It is not the only one, and it is not the worst," he said, calling for an EU "fiscal authority" and use of the European Stability Mechanism (ESM) to recapitalise banks.
 
Top EU officials are drafting a "master plan" for a Brussels summit this month but it will focus on the future shape of the EU in 10 years' time. The drafters are powerless in the face of the immediate crisis. Berlin has a de facto veto on all key decisions.
 
The ECB has so far sat on the sidelines as spreads on 10-year Spanish bonds reached a record 496 basis points over Bunds. The ECB is wary of moral hazard but critics say it is a dangerous game for bureacrats to force democracies to their knees by switching intervention on and off. In this case it is spreading contagion to Italy and risks igniting a tinderbox.
 
Ms Merkel is herself under massive pressure from Europe's Latin bloc and world leaders. Leaks of a teleconference call on Wednesday reveal that France's François Hollande, Italy's Mario Monti and US president Barack Obama launched a three-pronged attack, pressing Ms Merkel to drop Germany's veto on the use of EU rescue funds for banks.
 
The trio repeated their demands three times with mounting tension. Each time she answered no, first in English, and then in German for precision, according to details obtained by Italy's La Repubblica.
 
"Germany does not want the fund to spend billions in exchange for collateral from ruined banks. I don't see why we should end up holding bits of bankrupt lenders," she reportedly told them.