Renewed meltdown in Spanish and European bourses

pain and the rest of the European stock markets were gripped by panic again on Thursday on heightened fears of a global double-dip recession. On the back of surprisingly weak German economic growth in the second quarter and a slowdown in the euro zone as a whole, Morgan Stanley reduced its forecast for global growth for this year from 4.2 percent to 3.9 percent, while Deutsche Bank estimated the Chinese economy would grow at under nine percent this year and the next.

The Spanish blue-chip Ibex 35 closed down 4.70 percent at 8,317.70 points after at one point being down by over six percent. The spread between the yield on the benchmark Spanish 10-year government bond and the German equivalent widened to 290 basis points from 271 points.

A steep drop in Wall Street early on added to the sharp losses Europe had already posted. The Wall Street Journal reported Thursday that the US Federal Reserve is worried about the impact of the euro-zone crisis and is looking closely at the US subsidiaries of the biggest European banks.

Beyond Spain, the picture was also a grim one. The Portuguese benchmark PSI-20 index gave up 4.12 percent, while the DAX in Germany shed 5.82 percent. The Euro Stoxx 50 was off 5.34 percent.

Morgan Stanley said the global slowdown would put the United States and Europe "dangerously" close to falling into recession again within the next six to 12 months.

The US bank's pessimism lies in what it described as disappointing economic data and recent "political" errors made in both the United States and Europe.

The downgrade in prospects for world growth came after a summit earlier this week between French President Nicolas Sarkozy and German Chancellor Angela Merkel on the euro-zone crisis. The outcome of the meeting left the markets unconvinced.

"Edge of precipice"

In an interview published Thursday in the Swiss daily newspaper Le Temps, former European Commission president Jacques Delors said the euro and Europe were "on the edge of a precipice" and called for urgent measures to prevent the bloc from falling apart altogether.

Delors, who headed the European Union's executive body from 1985 to 1994 said the main problem was that the two EU economic powerhouses, France and German, had made "vague" and "insufficient" proposals to deal with the ongoing financial crisis.

Merkel and Sarkozy called for greater economic and fiscal coordination by euro-zone members but failed to take on board market calls for the issuing of euro-bonds.Delors called for the mutualization of euro-zone member's debt of up to 60 percent of GDP.

"Affected states would thus be covered by a partial guarantee of the economic and monetary union, the automatic consequences of which would be a drop in interest rates," Delors said.