Spanish PM's crisis talks to bolster economy

Investors are on stand-by for another rocky day when world stock markets open tomorrow after last week's sharp falls in bonds and shares. There are fears that the eurozone could be split by the growing financial crisis in Spain and Greece, pushing Europe back into recession.

Spain's Prime Minister, Jose Luis Zapatero, was working around the clock this weekend to put together an emergency package of labour reforms announced on Friday to help revive the ailing economy and soaring unemployment rate, but also to win back credibility among international investors.

Shares on Spain's bourse fell sharply last week with some of the country's biggest banks, such as Santander which owns Abbey, Bradford and Bingley and Alliance and Leicester, suffering big falls as investors worried about their exposure to the construction sector.

Unemployment in Spain hit four million last week, some 20 per cent of those available for work. In a last ditch attempt to restore confidence, Mr Zapatero is working with trade union leaders and business bosses to temporarily reduce working hours to preserve jobs; introduce ways of improving employment among the young and other measures to help reduce its benefits bill which is set to reach €30bn this year.

Worries that Spain would soon join Greece on Europe's sick list prompted the international sell-off which saw the Dow Jones crash below the 10,000 mark at one point last week. By Friday's close, the US and UK markets had recovered some of the losses although the FTSE 100 was still off £30bn.

One trader said: "Investors want the politicians – in all the weak eurozone countries – to reassure them that they are getting to grips with their deficits."