1. ITV Report

Spain downgraded as Merkel backs Europe's banks

Report from Economics Editor Richard Edgar

German chancellor Angela Merkel said Europe was ready to act to ensure stability in the euro zone as Spain's credit rating was cut by three notches amid expectations it may soon seek EU help for banks beset by bad debts.

Spanish Prime Minister Mariano Rajoy said he would wait for the results of independent audits of the banking system before talking with Europe about how to recapitalise its troubled lenders.

An International Monetary Fund report due out next Monday is expected to show Spanish banks need at least 40 billion euros (£32 billion).

Without waiting for a widely expected EU rescue, credit ratings agency Fitch cut Spain's sovereign rating to BBB from A with a negative outlook, saying Madrid was especially vulnerable to a worsening of the euro zone debt crisis.

Cameron's pledge to Britain

Report from Europe Editor James Mates

Meanwhile David Cameron pledged he will not ask British taxpayers to underwrite the debts of ailing banks in Greece and Spain, as he held talks with Ms Merkel about the eurozone crisis.

The Prime Minister said he had "no doubt" that the 17 nations of the eurozone would move towards closer fiscal union within the next weeks and months.

But he made clear that Britain would not be involved in any such arrangement, which could involve the creation of eurobonds to spread the risk of borrowing across the whole single currency area.

Mr Cameron said: "I can understand why eurozone countries may want to look at elements of banking union.

"Because we are not in the single currency, we won't take part in the profound elements of that banking union.

"I wouldn't ask British taxpayers to stand behind the Greek or Spanish deposits.

"It is not our currency, so that would be inappropriate to do.

"I will make sure that Britain's interests, particularly in the single market and the openness and fairness of the single market are protected.

British people have referendum 'guarantee'

Mr Cameron was asked whether a move towards closer integration within the eurozone of the kind which Ms Merkel has advocated would trigger a referendum in the UK.

He replied: "The British people have this guarantee - and it is now written into law by this Government - which is that if power is transferred from Westminster to Brussels then we hold a referendum.

"That's the guarantee, that's in law, and it is right it should be there."

Before their talks, Mr Cameron and Ms Merkel answered questions from students at a town hall event at the Federal Chancellery in Berlin.

Mr Cameron once again voiced his strong opposition to a Europe-wide financial transactions tax, which he said would simply drive jobs and growth away from the continent.

Britain's financial services industry was already "making a proper contribution" to helping get the national deficit under control, through taxes such as the banking levy, the Prime Minister said.