Markets on knife-edge after vast bailout agreed for Spanish banks

FINANCIAL markets open today on the brink of yet more volatility after the eurozone crisis deepened as Spain paved the way at the weekend for a €100 billion (£80bn) bailout of its beleaguered banking sector.

Analysts said that equities and currency markets could yo-yo as the day progressed, with sentiment on a knife-edge on whether the bailout in Europe’s fourth-biggest economy will spook or soothe investors.

One City analyst said: “Markets are likely to be nervous, but quite possibly ambivalent, when they open.

“Major bailouts migrating from so-called ‘peripheral’ single-currency countries like Greece, Ireland and Portugal to a core member like Spain can be seen as potentially signalling the end of the euro. That could send markets spiralling downwards again.”

However, another market strategist said: “A firm bailout for Spain might just be seen as the European Union grasping the nettle finally. That could steady markets after early wobbles. It’s a close call.”

The Spanish government said it would make a formal request to the European Union for aid from the European Financial Stability Facility following talks with eurozone ministers on Saturday.

A final figure on the size of the cash injection will only be available later this month after an independent audit of the Spanish banks. The best known of these in Britain is Santander, which has in recent years taken over Abbey, Bradford & Bingley and Alliance & Leicester.

MARTIN FLANAGAN