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.
Once again though, the main actors in the Greek debt drama failed to provide complete clarity -- until that emerges the markets could well suffer further turmoil.
Royal Bank of Scotland analyst Jacques Cailloux said the statements by Merkel, Strauss-Kahn and European Central Bank president Jean-Claude Trichet "failed to provide groundbreaking information" and warned that Europe risked the "biggest coordination failure in modern history."
Until the German parliament backs the release of the funds, the markets will remain "very sceptical" that the powers that be have got a handle on the crisis, said Cailloux.
Merkel's government has balked at handing over the Germans' taxpayers money to a country that has admitted has massaged its debt figures for years -- and key regional elections in Germany on May 9 have not helped a swift resolution.
Merkel stressed that Germany was still insisting Greece commit to cutbacks.
"Germany will make its contribution but Greece has to make its contribution," she said.
Merkel would not comment on how much money Greece would need in the long run. "What is known ... is that it will be a three year program..." she said. "Let us talk about numbers when the program is finalized."
The clock is ticking -- Greece has to pay off some euro8.5 billion worth of debts by May 19, but cannot raise the money in the markets given current sky-high borrowing costs -- at one stage earlier, the yield on the two-year Greek bond spiked up to a massive 23 percent.
That means it needs its 15 partners in the eurozone and the International Monetary Fund to cough up the money promised earlier this month, including euro8.4 billion from Germany.
The downgrade for Spain was an ominous new blow, coming just as markets were recovering their poise after the double shock Tuesday of a Standard & Poor's downgrade for Greece -- to junk status -- and Portugal.
Greece and Portugal, up to now the focus of alarm, are relative economic minnows; Spain's economy is four times the size of Greece and is considered by some to be too big to rescue.
Though its overall debt burden is fairly modest at around 53 percent of national income compared to 115 percent for Greece, the country is running a high budget deficit and has done less than others to get a handle on its public finances.
The agency said it was cutting Spain's rating to AA from AA+ amid concerns about the country's growth prospects following the collapse of a construction bubble.
"We now believe that the Spanish economy's shift away from credit-fuelled economic growth is likely to result in a more protracted period of sluggish activity than we previously assumed," Standard & Poor's credit analyst Marko Mrsnik said.
Spain still has an investment grade rating but could wind up paying more to borrow and may find itself under pressure to take tougher steps to cut spending.
"Given its lack of competitiveness and the grim outlook for domestic demand the government will need to announce further fiscal measures if it is to make serious inroads into the deficit," said Ben May, European economist at Capital Economics. "Today's announcement may increase the pressure on it to do this sooner rather than later."
Speaking during a cabinet meeting Wednesday, Greek Prime Minister George Papandreou said that every EU member must "prevent the fire that intensified through the international crisis from spreading to the entire European and global economy."
Papandreou insisted Greece was determined to bring its economy into order. "We will show that we do not run away. In difficult times we can perform -- and we are performing -- miracles," he said, adding that "our government is determined to correct a course that has been followed for decades in a very short time."
Investors appeared to anticipate Athens would eventually have to default or restructure its debt payments at some point even if the bailout gets it past May 19, when it has debt coming due.
Authorities in Athens halted short-selling of stocks for two months, helping the exchange finally climb after a five-day losing streak. The ban will remain in force until June 28. It closed up 0.63 percent at 1,707.35.
Associated Press Writers Verena Schmitt-Roschmann, Melissa Eddy and David Rising in Berlin, Barry Hatton in Lisbon, Nicholas Paphitis and AP Television Producer Nathalie Rendevski Savaricas in Athens contributed to this report. Business Writer Pan Pylas contribued from London.