MADRID, May 18 (UPI) -- Fear of what lies beneath a succession of downgrades of Spanish banks drove market indexes down in Europe and elsewhere, with warnings that a U.K. subsidiary of Santander group might be also be at risk.
Spanish Prime Minister Mariano Rajoy took sweeping measures last week to shore up banks with piles of bad real estate debt and other non-performing loans. But the rescue attempt appeared to have left investors unimpressed.
Added to Spain's troubles and continuing political turmoil in debt-ridden Greece is a perceived erosion of confidence in Europe's austerity program to rein in national deficits.
The austerity program appeared to be generally accepted as a necessary evil until French elections threw out President Nicolas Sarkozy, one of the two chief champions alongside German Chancellor Angela Merkel.
Sarkozy's successor, Francois Hollande, has spearheaded a quiet but determined campaign to steer eurozone from austerity toward spending to spur growth -- opposite of what Sarkozy and Merkel built into a fiscal compact they got members to sign.
The fiscal compact sets punitive fines and sanctions against individual countries that fail to cut deficits.
But that was before Spain emerged as the next potential bailout candidate and Greece returned to news headlines as the first eurozone member seen likely to dump the currency and leave the eurozone.
Moody's ratings agency Friday cut the credit ratings of 16 Spanish banks as well as Santander UK, a subsidiary of the Spanish banking group which also has extensive operations in Latin America.
Last week Rajoy's government mounted a rescue of struggling lender Bankia but as markets reopened shares in Bankia fell another 14 percent -- taking the total loss to nearly half their value at the beginning of May.
Concern over the next direction of other Spanish banks also hit markets. Banco Santander and BBVA, another two of the larger banks in Spain, saw their share values plummet.
Ten of 17 Spanish banks are on negative credit watch, which implies further downgrades.
Cutting the ratings, Moody's cited the "adverse operating conditions, characterized by the renewed recession, the ongoing real-estate crisis and persistent high levels of unemployment."
There were signs that Spain's sovereign rating was also at risk. In its rating action, Moody's singled out the regions of Andalucia, Catalonia, Extremadura and Murcia for downgrades, saying the four regions might not meet targets for cutting deficits as set in the EU fiscal compact.
As part of the rescue attempt earlier this month, Rajoy set in motion a partial nationalization of Bankia, reported to be saddled with more than $40.6 billion in distressed property assets, but the downgrades present his government with monumental problems about the whole banking sector. Analysts have been warning since last year the Spanish banking sector is too large to bail out.
An independent audit of the Spanish banking industry is to start next week to determine the banks' true worth.
This week, eurozone troubles will figure at the Group of Eight summit at the U.S. presidential retreat Camp David in Maryland. U.S. President Barack Obama will host leaders from Canada, Britain, France, Germany, Italy, Japan, Russia and the European Union.
Oil hit its lowest levels for the year, at $106.40 a barrel for North Sea Brent on London markets.
Asian stock markets registered heavy losses, some carried over from losses in New York.
British Prime Minister David Cameron said Thursday Europe's 2008 financial crisis "never really went away" and called for recourse to "eurobonds."
His remarks in Manchester, England, preceded afternoon conference calls with EU leaders to discuss the potential collapse of the euro. Ahead of the talks he issued a warning that eurobonds may be required "to put an end to speculation about the future of the euro."
The bonds are collective debt issued by the European Central Bank, funding that would be used to bail out struggling countries. The debt would be created by the eurozone as a whole, indicating richer countries would absorb more risk than poorer ones. Merkel opposes a bond issue.
Cameron said Britain's interests would be served by eurozone leaders sorting out their problems.
Cameron's remarks followed a comment by Bank of England Governor Mervyn King Wednesday that Britain is drawing up contingency plans for a eurozone breakup.
The economic and monetary union is "tearing itself apart without any obvious solution," King said, calling the euro debt crisis the single biggest threat to Britain's economic recovery.
Britain is in a double-dip recession. The eurozone is Britain's biggest trading partner.