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Spanish economy shrinking at 'significant rate' Markets fall as Bank of Spain warns on economy
(35 minutes later)
The Spanish economy continued to shrink at a "significant rate" in the third quarter, the Bank of Spain has said. European stock markets have fallen amid concerns about Spain and as trade unions hold a general strike in Greece.
Spain's Ibex index was down 3%, while markets in London, Paris and Frankfurt were down more than 1%.
The Bank of Spain said in a report that the Spanish economy had continued to shrink at a "significant rate" in the third quarter of the year.
Spain is currently in a deepening recession, with the unemployment rate at its highest level since the 1970s.Spain is currently in a deepening recession, with the unemployment rate at its highest level since the 1970s.
Economy Minister Luis de Guindos said on Saturday he expected the economy to contract by about 0.4% in the July-to-September quarter. Worries about Spain also caused the country's borrowing costs to rise, with the yield on 10-year Spanish bonds traded on international markets rising to 6.02% from 5.67%.
European markets were trading lower, with concerns about Spain adding to fears over global growth. Meanwhile in Greece, tens of thousands of people have gathered outside the parliament as part of a day-long general strike to protest against new austerity measures.
Spain's Ibex index was down 2.3%, while markets in London, Paris and Frankfurt were down more than 1%. The measures are a pre-condition to Greece receiving its next tranche of bailout funds, without which the country could face bankruptcy in weeks.
Spain's borrowing costs also rose, with the yield on 10-year Spanish bonds traded on international markets rising to 6.02% from 5.67%. 'High tensions'
The Bank of Spain said in a monthly report: "Available data for the third quarter of the year suggests that GDP kept falling at a significant rate, in a context of high financial tensions." Spain's Economy Minister Luis de Guindos said on Saturday that he expected the economy to contract by about 0.4% in the July-to-September quarter.
Separately, French bank Societe Generale said that it had further cut its exposure to Spanish sovereign debt, to 400m euros ($515m; £318m) by the end of August, from 700m euros at the end of June. And in its latest monthly report, the Bank of Spain said: "Available data for the third quarter of the year suggests that GDP kept falling at a significant rate, in a context of high financial tensions."
Bailout
The Spanish government has introduced highly unpopular spending cuts and tax rises as it attempts to reduce the country's deficit.The Spanish government has introduced highly unpopular spending cuts and tax rises as it attempts to reduce the country's deficit.
An anti-austerity rally outside the parliament in Madrid on Tuesday turned violent, with police firing rubber bullets and baton-charging protesters.An anti-austerity rally outside the parliament in Madrid on Tuesday turned violent, with police firing rubber bullets and baton-charging protesters.
Spanish media reported that at least 20 people had been arrested and more than a dozen injured.Spanish media reported that at least 20 people had been arrested and more than a dozen injured.
The government will present details of an emergency budget and further austerity measures on Thursday. Bailout
Spain's government will present details of an emergency budget and further austerity measures on Thursday.
As the government struggles to avoid a full bailout, the Catalan regional government has called snap elections for 25 November, which will be seen effectively as a referendum on Catalan independence.As the government struggles to avoid a full bailout, the Catalan regional government has called snap elections for 25 November, which will be seen effectively as a referendum on Catalan independence.
The election could jeopardise plans for national economic reforms. The election could also jeopardise plans for national economic reforms.
There is real concern in Europe that Spain may need an international bailout going beyond the 100bn euros pledged by eurozone finance ministers in June to rescue its banks, but Prime Minister Mariano Rajoy has so far avoided requesting one.There is real concern in Europe that Spain may need an international bailout going beyond the 100bn euros pledged by eurozone finance ministers in June to rescue its banks, but Prime Minister Mariano Rajoy has so far avoided requesting one.
"The markets have been getting very, very worried about this delay," Philip Tyson from ICAP told the BBC."The markets have been getting very, very worried about this delay," Philip Tyson from ICAP told the BBC.
"To activate a bond-buying programme by the ECB [Mr Rajoy] needs to apply for a bailout and he seems to be resisting.""To activate a bond-buying programme by the ECB [Mr Rajoy] needs to apply for a bailout and he seems to be resisting."
Responsibility for banks?Responsibility for banks?
On Tuesday, Germany, the Netherlands and Finland issued a joint statement setting out the terms under which they would be willing to let the European Stability Mechanism (ESM), the eurozone's permanent bailout fund, recapitalise banks that find themselves in trouble.On Tuesday, Germany, the Netherlands and Finland issued a joint statement setting out the terms under which they would be willing to let the European Stability Mechanism (ESM), the eurozone's permanent bailout fund, recapitalise banks that find themselves in trouble.
The statement appeared to go against what was agreed by EU leaders in June that paved the way for the direct recapitalisation of problem banks.The statement appeared to go against what was agreed by EU leaders in June that paved the way for the direct recapitalisation of problem banks.
The three countries distinguished between future banking problems and "legacy" difficulties, implying that highly indebted banks would remain the responsibility of their countries' governments.The three countries distinguished between future banking problems and "legacy" difficulties, implying that highly indebted banks would remain the responsibility of their countries' governments.
Spain and Ireland had both seen the June summit as implying that a way would be found to break the link between their indebted banks and the debts of the government.Spain and Ireland had both seen the June summit as implying that a way would be found to break the link between their indebted banks and the debts of the government.