Eurozone crisis deepens as borrowing costs soar for troubled economies

The eurozone was again plunged into crisis yesterday as the cost of borrowing for governments in Belgium, Italy and Spain soared to fresh highs and Portugal's central bank warned of "intolerable risks" if Lisbon did not take more decisive action to stabilise the country's finances.

For the second day in a row the European Union's €85 billion (71bn) bail-out of Ireland appeared ineffectual in the face of swelling panic over a major sovereign debt crash among the zone's "peripheral" countries.

The euro fell below $1.30 against the dollar at one point - its lowest level since September - while one leading economist went so far as to suggest that Europe was simply the "opening act" and the crisis could shortly extend to the rest of the world - namely the US and Japan.

Willem Buiter, the fted chief economist at Citigroup, said in a research note: "There is no such thing as an absolutely safe sovereign."

The Portuguese government yesterday attempted to soothe concerns over its public finances, issuing a firm denial - as the Irish government did previously - that it would need outside help.

Although markets believe the eurozone could withstand a Portuguese bail-out, it is feared that any problems in Lisbon could quickly infect Spain given the neighbouring countries' close economic ties.

Portugal's government last week rubber stamped an austerity budget for 2011 but the move failed to dampen speculation about the state of the public finances given that it is already struggling to meet deficit reduction targets.

Few believe the 16-country eurozone could absorb a Spanish rescue package, which it is estimated, could reach €420bn.

However, even greater anxiety surrounds the Italian economy. The borrowing costs of both Italy and France also shot higher amid yesterday's unrest.