begun to home in on comments by German chancellor Angela Merkel that
   the ESM will not carry the legacy costs of Spain's banking crisis.

   The burden will instead fall on the Spanish state. This will be 4pc of
   GDP on official estimates, or nearer 10pc if the pessimists are right
   about the true scale of property debts. The International Monetary Fund
   said earlier this month that Spain "must be able to recapitalise banks
   without adding to sovereign debt" if it is to recover.

   Adrian Zunzunegui from Cheuvreux said the underlying crisis was "still
   getting worse" as fiscal austerity ravages the tax base. "We believe
   the budget deficit will stand at 8pc in 2012."

--
       pact deepens

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