NEW YORK (CNNMoney.com) -- Fears about Europe's debt crisis ramped up again Thursday, after Ireland's central bank unveiled a $46 billion bank bailout and Moody's downgraded Spain's credit rating.
In an effort to prop up Anglo Irish Bank, Ireland's central bank passed a $40 billion bailout that could be increased to as much as $46 billion in a severe stress scenario.
The bailout would increase the country's already massive budget deficit from a planned 11.75% of its gross domestic product, to a staggering 32% in 2010 -- about ten times the European Union guidelines for euro-zone members.
Spain's weak economy was also hit with bad news Thursday. Moody's Investors Service downgraded the country's credit rating one notch to Aa1 from Aaa. Both are considered investment grade ratings, but a downgrade signifies Moody's outlook for the country's economic growth is gloomier than in the past.
Over the next few years, Moody's expects Spain's economy to grow at a sluggish rate of only 1% annually. That poses a big challenge as the country tries to reduce its massive fiscal deficit and refocus its economy away from the construction and real estate sectors.
Both Ireland and Spain are a part of a group of peripheral euro-zone countries struggling to overcome massive budget deficits, nicknamed the PIIGS -- Portugal, Italy, Ireland, Greece and Spain.
After tumbling earlier in the session, European stock indexes recovered a bit to post only modest losses in midday trading. France's CAC 40 fell 0.9%, Britain's FTSE 100 slipped 0.2% and Germany's DAX fell 0.3%.
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