European ministers are planning emergency talks this weekend after the Eurozones sovereign debt crisis threatened to engulf Spain and Portugal.
The extra cost of borrowing paid by the Spanish Government when compared with German debt hit a euro lifetime record yesterday amid concerns that the sovereign debt crisis is spreading beyond Ireland.
At the same time, the euro slumped to its lowest level against the dollar for more than two months, sliding as low as $1.3196. The single currency has fallen 7 per cent against the dollar this month and by 6 per cent against sterling since the last week of October.
José Luis Rodríguez Zapatero, Spains Prime Minister, was forced to deny that there was any need for his country to seek a bailout, warning that speculators could damage their own interests by betting that this was possible.
This came as Portugal claimed reports that it was being put under pressure to accept international aid were incorrect. Officials from two EU countries said talks were being planned for the weekend with the first priority resolving the Irish crisis.
Teams meeting in Ireland are attempting to finalise talks aimed at a bailout of the stricken nation this weekend. Some creditors fear that the rescue team will try to force senior bondholders to sustain losses on their holdings in Irish banks. One said that he believed lawyers had been appointed to look at the matter. However, this could have damaging repercussions across Europe for other lenders.
Analysts said it was crucial that the EU got to grips with situation by acting decisively. Ken Wattret, of BNP Paribas, said: It is slowly dawning on the powers that be that they need to move more quickly. The attempt to stabilise the situation so far has been pitiful.
George Magnus, economic adviser at UBS, said: What the European sovereign creditors want to see is a systemic solution to this crisis, not just a band-aid, case-by-case solution.