Spain's economy sinks further amid growing bailout fears

Spain's economy sank further into recession in the second quarter as investors jittery over an undeclared funding crisis in its regions pushed the country towards a full bailout, its central bank said today.

Economic output was down 0.4 per cent in the three months from April to June, having dropped by 0.3 per cent in the first quarter, the Bank of Spain said in its monthly report.

Though economy minister Luis de Guindos denied a full-scale financial rescue was on the cards, on top of the 100 billion euros provision made for the country's banks, Spain's sovereign bond yields remained in the danger zone.

As against de Guindos' contention that there was little else Spain could do to ease the tensions after it approved a 65-billion-euro austerity package last week, the central bank's deputy governor called for more belt-tightening.

Fernando Restoy remarked after a conference in Madrid that the current market problems reflected problems in Spain as also the euro zone.

Spain, he added, needed to continue further along the same line, with more cuts, more reforms, which would restore market confidence and mechanisms that strengthen the monetary union.