The European Union doesn’t have the resources to rescue Spain if it “collapses,” an event that could lead to the end of the euro, Nobel Prize-winning economist Christopher Pissarides said.

A collapse would be “a very serious problem,” Pissarides, who teaches at the London School of Economics, said at a forum in Beijing today. Such an event “might even see the end of the euro as a common currency,” he said.

Spain plans to auction debt tomorrow in the next test of investors’ confidence that the nation can weather Europe’s sovereign-debt woes. Prime Minister Jose Luis Rodriguez Zapatero is aiming to prove he can finance his government’s commitments amid high unemployment and after bailing out savings banks.

“If Spain collapses the way Greece has collapsed I don’t think the European Union has the resources to rescue it,” Pissarides said.

Pissarides shared the 2010 Nobel Prize in economics with Dale Mortensen and Peter Diamond for research into the difficulties of matching supply and demand, particularly in the labor market.

“If Spain were to collapse then the money needed to rescue it would be so much that I doubt whether the stronger European nations, Germany in particular, would be either able or willing to accumulate all of the funds,” Pissarides said.

Policymakers may need to seek a more fundamental solution instead, such as Spain temporarily reverting to the peseta, he said.

Japan, China Help

The euro rose to $1.2999 as of 3:54 p.m. in Tokyo from $1.2974 yesterday on speculation that bond purchases by China and Japan may help to stem Europe’s crisis.

Japan pledged yesterday to buy debt issued by Europe’s financial-aid funds, joining China in assisting the region as it battles against its debt crisis. Chinese Vice Premier Li Keqiang last week expressed confidence in Spain’s financial markets and pledging more purchases of that country’s debt.

The extra yield investors demand to hold 10-year Spanish government bonds rather than German bunds touched a record 298 basis points on Nov. 30 compared with an average of 15 basis points over the first decade of the monetary union.

Concern that the country won’t be able to reduce the euro region’s third-highest budget deficit and avoid a European Union bailout has driven up financing expenses for banks, which have more than 30 billion euros ($39 billion) in debt coming due in the next four months.

Ireland Bailout

Ireland in November became the second euro country after Greece to seek a bailout and the first to request aid from the European Financial Stability Facility.

The EFSF, overseen by euro-area governments, plans to raise up to 16.5 billion euros this year and 10 billion euros in 2012 to help finance the Irish bailout, the European Commission said in December. The facility plans to issue between 3 billion euros and 5 billion euros of the AAA-rated bonds later this month.

“Throughout this whole crisis the response of policymakers in Europe has been terribly reactive,” Russell Jones, global head of fixed-income strategy at Westpac Banking Corp., said on Bloomberg Television. “That’s just giving an incentive for the markets to continue to drive through their speculative attacks on different bond markets to drive this further and further to a rather unpleasant conclusion.”

Bailout Unnecessary

Portuguese Prime Minister Jose Socrates said yesterday that Portugal doesn’t need a bailout from the EU and its 2010 budget deficit will be lower than forecast. Socrates said rumors that the country needs aid are only helping “speculators” while hurting Portugal and the euro.

Portugal’s six-month borrowing cost jumped to 3.686 percent at a bill sale last week, up from 2.045 percent in September. The country plans to borrow as much as 1.25 billion euros by issuing debt repayable in October 2014 and June 2020, the nation’s debt agency said on Jan. 6.

“Portugal is the next domino to fall and frankly at this stage it’s looking very difficult to see how that economy can escape seeking some sort of bailout,” said Jones at Westpac.