Markets in Europe were selling-off across the board today as Spain's banking crisis deepens.
Spanish government bond yields were climbing back towards record highs after the European Central Bank (ECB) shot down plans in Madrid to recapitalise parts of its banking system.
Madrid had suggested recapitalising stricken-lender Bankia by injecting €19bn of sovereign bonds into its parent company, which could then be swapped for cash at the ECB's three-month refinancing window. This would avoid Spain having to tap the bond markets for cash.
However, the ECB told Madrid a proper capital injection is needed for Bankia, with its plans in danger of breaching an EU ban on central bank funding of governments.
The news sent yields on Spanish 10-year debt racing to 6.629%, just a whisker away from the record high of 6.66%.
There is now every chance Spain's refinancing costs could hit a new high, with investors unsure how it can repair its banking system without weakening its own financial position further.
With fear once again ruling, markets are taking a hammering this morning, with the FTSE 100 down 1.2% at 5,326 points.
Miners are among the worst fallers in the UK's blue chip index, as investors de-risk once again.
In Europe it was also bleak, with the French Cac 40 down 1.25% at 3,046, the German Dax off 0.9%, at 6,340, and the Spanish Ibex 35 sliding 1.2% to 6,176.
What made financial headlines over the weekend?
290,000 already affected
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension