By Heather Stewart, Larry Elliott and Giles Tremlett in Madrid
Investors demanding high premiums for holding Italian and Spanish bonds as fears of double-dip recession grow
Stock market panic selling led to shares falling across the world with the FTSE100 down 128 points. Photograph: Frank Baron for the Guardian
Europe‘s sovereign debt crisis exploded back into life on Tuesday, with markets across the continent rocked by a wave of panic selling amid renewed fears about the impact of savage austerity measures in Spain and Italy.
The mood of uneasy calm seen across Europe since the Greek bailout in February was shattered as financial markets took fright at evidence of a double-dip recession and growing popular opposition to welfare cuts and tax increases.
Italy and Spain, the eurozone’s third and fourth biggest economies, were at the centre of the market turmoil, with investors demanding an increasingly high premium for holding their bonds.
“Spain is right in the centre of a European storm,” admitted finance minister Luis de Guindos, who declined to rule out an eventual bailout but insisted it could be avoided.