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Markets fall as Bank of Spain warns on economy Markets fall as Bank of Spain warns on economy
(35 minutes later)
European stock markets have fallen amid concerns about Spain and as trade unions hold a general strike in Greece.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%.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.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.
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%.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%.
And the euro fell to a two-week low against the dollar, down 0.3% at $1.2863, having earlier hit $1.2848.And the euro fell to a two-week low against the dollar, down 0.3% at $1.2863, having earlier hit $1.2848.
Meanwhile in Greece, police fired tear gas at demonstrators in Athens as tens of thousands of people gathered outside the parliament as part of a day-long general strike to protest against new austerity measures.Meanwhile in Greece, police fired tear gas at demonstrators in Athens as tens of thousands of people gathered outside the parliament as part of a day-long general strike to protest against new austerity measures.
The measures are a pre-condition to Greece receiving its next tranche of bailout funds, without which the country could face bankruptcy in weeks.The measures are a pre-condition to Greece receiving its next tranche of bailout funds, without which the country could face bankruptcy in weeks.
'High tensions' 'High 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.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.
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."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."
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.
BailoutBailout
Spain's government will present details of an emergency budget on Thursday.Spain's government will present details of an emergency budget on Thursday.
But with a shrinking economy and unrest in the country, reducing the deficit with further austerity measures may prove a difficult task for the government.But with a shrinking economy and unrest in the country, reducing the deficit with further austerity measures may prove a difficult task for the government.
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 also 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."
But in an interview with the Wall Street Journal, Mr Rajoy suggested that he would seek a rescue package if debt financing costs remained too high for too long.But in an interview with the Wall Street Journal, Mr Rajoy suggested that he would seek a rescue package if debt financing costs remained too high for too long.
"I can assure you 100% that I would ask for this bailout," he said."I can assure you 100% that I would ask for this bailout," he said.
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.
Crisis jargon buster Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is minuscule. Glossary in full
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.
Bank auditBank audit
The problems in the eurozone are now back in focus after the summer break.The problems in the eurozone are now back in focus after the summer break.
Portugal is holding an extraordinary cabinet meeting after big protests forced the government to withdraw a plan to hike employees' tax rates.Portugal is holding an extraordinary cabinet meeting after big protests forced the government to withdraw a plan to hike employees' tax rates.
On Friday, an independent audit of Spain's banks will reveal how much they will need of the 100bn euro aid package that Europe has already approved.On Friday, an independent audit of Spain's banks will reveal how much they will need of the 100bn euro aid package that Europe has already approved.
Previous independent audits have said that they will need up to 62bn euros.Previous independent audits have said that they will need up to 62bn euros.
Also on Friday, credit rating agency Moody's will publish its latest review of Spain, and may downgrade the country's debt to "junk" status.Also on Friday, credit rating agency Moody's will publish its latest review of Spain, and may downgrade the country's debt to "junk" status.
Moody's warned in June that it could cut Spain to junk within three months.Moody's warned in June that it could cut Spain to junk within three months.