NEW YORK ( TheStreet) -- There could be more trouble for European countries several years if the labor markets do not improve and debt restructuring fails, according to Julian Callow, managing director and chief European economist at Barclays Capital.

Callow, who was speaking at a Bloomberg conference in New York Tuesday, said that he believes that Portugal will have to turn to other European countries for aid because sovereign debt levels are unsustainable.

"Our view is that Portugal will need to access European facilities. That is about as large as fiscal consolidation gets," Callow said. "European countries should offer these countries lower interest rates. If these countries can access financing at four percent and five percent, it would be a significant difference."

Callow believes that there will be restructuring across Europe as conditions worsen. He added the conditions of all banks in each country are unique situations, particularly in Spain where they are restructuring the "cajas" -- or banks --to demonstrate more transparency.

""The banking sector is really rebuilding itself. They may be kicking the can down the road, but at least it allows the banks to build more capital,"Callow said.

Jonathan Lemco, principal and senior analyst fixed income group at The Vanguard Group, said he thinks that if Spain's restructuring does not work all of Europe could suffer.

"I think Spain is a whole different category it has a diversified industry, it has some wealth and reserve," said Lemco. "The stakes for the rest of Europe if Spain were to have another restructuring are so great that the whole experiment would be done."

Standard & Poor's is still rating the Spanish banks very high, according to John Chambers, managing director at the rating agency. He says that BBVA ( BBVA) and Banco Santander ( STD)are still rated very high.

"We think that the cost of the cajas can be contained and we expect it to remain a highly rated sovereign," said Chambers.

Chambers added Portugal was on a negative credit watch and would likely have to turn to financing officially even though the government is adamant that they don't want to go that path.

"Our prospects are not very bright for Portugal with the cost of external finance and demand very weak," Chambers said.

--Written by Maria Woehr in New York.

To contact the writer of this article, click here: Maria Woehr.

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