The country's credit rating now teeters barely above junk status, amid growing fears it will sink still further after being shut out of international markets.

The borrowing interest rates currently stand at the highest they've been since the euro's inception, with the yield on Spain's 10-year bonds shooting up to 6.86 percent.

Last weekend, eurozone finance ministers announced they were prepared to lend up to €100bn to pull Spain out of the financial abyss, but Moody's announced the plan will only increase the country's massive debt burden.

The investment services firm downgraded Spain's Fondo de Reestructuración Ordenada Bancaria (FROB) to BAA3 from A3 status and announced they will look to review the situation again in three months.

“The review for downgrade will focus on the outcome of the ongoing external audits of the Spanish banking system, the conditionality and details of the EFSF/ESM loan agreement, and the specific execution strategy developed for the banking system's recapitalisation,” a statement said.

Spain's economic misery is expected to grow further with unemployment now standing at close to 25 percent, after steadily increasing since 2007. The youngest have been hit hardest, with over 50 percent of young graduates struggling to find work.