Financial market pressure on Italy and Spain intensified today, driving up their borrowing costs and prompting Italian authorities to call emergency talks.
Spanish PM Jose Luis Rodriguez Zapatero also postponed his scheduled summer holiday in order to deal with his country's escalating economic worries.
In what was also seen as a worrying development for the euro zone crisis, the interest rate on German government bonds fell below the country's inflation rate for the first time since reunification in 1990,
The yield on benchmark German 10-year government bonds fell to 2.395%, below the country's 2.4% July inflation rate, amid unprecedented demand for the bonds.
German government bonds are seen as the safest in the euro zone, and a rate of return below inflation indicates that investors are willing in effect to pay for security instead of risking a return elsewhere.
The gap between yields on Spanish and Italian bonds and those of Germany moved up to record levels as concern mounted over whether they would be the latest to succumb in the euro zone debt crisis.
The yield on Italian bonds rose to 6.165% from 5.988% on Monday, while Spanish bonds climbed to 6.326% from 6.18%. Yields of 6% or more are widely considered to be unsustainable for slow-growth euro zone countries. Meanwhile, the rate demanded for 10-year Irish debt fell to below 11%.
European stock markets also fell today due to worries that slowing economic growth will make it even harder to overcome the euro zone's debt troubles.
Italy's Economy Minister Giulio Tremonti called a meeting of the Financial Stability Committee - made up of representatives of the government, the Bank of Italy, market regulator Consob and insurance authority ISVAP - a day before Prime Minister Silvio Berlusconi is due to address parliament.
The European Commission said Italy and Spain were taking necessary action to keep their economies on track.
Italy is in the firing line partly because, at 120% of economic output, it has the highest debt to gross domestic product ratio of any euro zone nation except Greece, which is nearing 160%. Political instability in its centre-right coalition government has fuelled market concern.
The EU and the International Monetary Fund have already had to grant bailouts to Greece, Ireland and Portugal. Cyprus may be next in line due to its banks' exposure to Greek debt, and economic fall-out from an explosion last month that destroyed its sole electrical power station.
