The government predicts the economy will keep contracting into 2013 as new austerity measures — such as tax hikes and benefit cuts — hurt consumers and businesses.
The gloomy outlook has increased worries about public finances because shrinking economic output deprives the government of revenue it needs to lower the deficit.
If those borrowing rates do not fall back, the central government may end up being locked out of international markets and be forced to seek a financial rescue, like Greece, Ireland and Portugal.
A debt default by Spain would rock global financial markets and threaten the existence of the euro currency.
The ECB claims the measures are not effective in fighting the crisis and that governments need to take action by, among other things, sharing countries' debt loads.
The banks carry massive amounts of soured real estate investments following the collapse of the country's property bubble in 2008.
"There are situations of irrationality in the short term behavior of the markets, extreme nervousness which can't be resolved by governments and must be sorted out from other angles," he told reporters before going into Parliament to discuss the rescue package for the banks.
The gloomy outlook has increased worries about public finances because shrinking economic output deprives the government of revenue it needs to lower the deficit.
If those borrowing rates do not fall back, the central government may end up being locked out of international markets and be forced to seek a financial rescue, like Greece, Ireland and Portugal.
A debt default by Spain would rock global financial markets and threaten the existence of the euro currency.
The ECB claims the measures are not effective in fighting the crisis and that governments need to take action by, among other things, sharing countries' debt loads.
The banks carry massive amounts of soured real estate investments following the collapse of the country's property bubble in 2008.
"There are situations of irrationality in the short term behavior of the markets, extreme nervousness which can't be resolved by governments and must be sorted out from other angles," he told reporters before going into Parliament to discuss the rescue package for the banks.
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