By James Bryce
SPANISH Prime Minister Jose Zapatero has been forced to cut short his holiday in a desperate bid to save the Spanish economy.
The PM held talks with US President Barack Obama on Monday in which the leaders discussed the latest developments in the European economic crisis.
It comes as fears over the state of the Spanish economy intensified this week, with an EU bid to buy up government bonds failing to stabilise the markets.
The European Central Bank (ECB) did not say how many bonds it had bought or what they were but estimates suggest it was between 3.5 million and five million euros from Spain and Italy.
The ECB announcement saw yields on Spanish 10-year bonds fall sharply from more than six per cent to around 5.2 per cent.
The news initially had a positive impact on the markets as Spain’s Ibex 35 rose 2.6 per cent on Monday, before later slipping back.
The volatility of the markets was fuelled further following the announcement that the US’ credit rating had been controversially downgraded from AAA to AA+ status for the first time in its history.
Spain’s finance ministry has promised budget measures worth five billion euros to ensure it meets this year’s deficit reduction target.
The Bank of Spain estimated the economy grew just 0.2 per cent in the second quarter compared with the first three months of the year.
In a bid to reassure jittery investors, EU Economic and Monetary Affairs Commissioner Olli Rehn, said: “Spain has committed itself to broad ranging measures.
“It has made major progress in the areas of fiscal consolidation, banking sector restructuring, pension reform, as well as labour and product market reforms.”