Spanish Prime Minister Jose Luis Rodriguez Zapatero called an early general election on Friday after facing accusations of allowing the economy to deteriorate.

The elections, which were due to be held in March 2012, have been moved forward four months to November 20.

"The course is set. So I am announcing a timetable for elections, which will be held on November 20," Zapatero told a news conference on Friday.

This date "will allow us to finish substantial matters and will enable the new government to confront the challenges of the country from January 1," he added.

Zapatero had come under fire from the conservative opposition for his handling of Spain's ongoing economic crisis, which has seen unemployment in the country reach record highs.

Struggling economy

Spain's financial difficulties were emphasized on Friday when the Moody's rating agency revealed it was planning to downgrade the country's credit rating.

Although Moody's opted to maintain Spanish debt at an Aa2 rating, it threatened to drop it by one notch in the next three months.

It also threatened to lower the ratings of four Spanish banks, including the eurozone's largest, Santander, as well as the country's confederation of savings banks.

Moody's warned that the new bailout package for Greece was likely to increase funding pressures on Spain. Slow economic growth and fiscal slippage by some regional and municipal governments were also identified as causes for concern.

Official data, also released of Friday, brought more bad news.

It found that unemployment remained the highest in the industrialized world despite having decreased slightly.

At the end of March, the unemployment rate stood at 21.29 percent of the population, the National Statistics Institute said. In June, that figure dropped to 20.89 percent, or approximately 4.63 million people.

Positive outlook

Despite these negative economic projections, Zapatero opted to remain optimistic as he announced the early general election.

He stressed the improvement of the economy which had grown for seven successive quarters.

"In a very complicated context, the economy is showing positive signs... We have put in place the bases for recovery," he said "For this reason, it is the moment to announce a timetable for the next general elections," he added.

But commentators were uncertain that an early election would benefit the economy.

"I'm not convinced an election alone, even if it creates a fairly stable new government, will calm down markets. What we've seen in the last 18 months is that there are events that have a short-term impact on the markets," David Bach, an economist at IE business school told the Reuters news agency.

"The markets will probably respond positively initially until they realize there might not be an alternative plan as people had hoped for," he added.

The race begins

Political commentators had widely anticipated an early election, expecting Zapatero's socialist party to try to capitalize on slightly improved opinion poll ratings.

Zapatero has said he would not seek a third term. Instead, the Socialist's leading candidate will be former interior minister Alfredo Perez Rubalcaba.

The conservative opposition under Mariano Rajoy is widely expected to win the vote, but analysts say the only question is by what margin.

In recent months it has been suggested that Spain could follow Greece, Portugal and Ireland in seeking a bailout from the European Union and the International Monetary Fund, something the government has fiercely denied.

Author: Charlotte Chelsom-Pill (AFP, Reuters, dpa)

Editor: Nicole Goebel