HispanicBusiness

The eurozone took a hammering on the financial markets this week as investors worried about a cataclysmic break-up ran for cover.

The single currency tumbled and borrowing costs in Spain and Italy soared as the crisis that has plagued the region for the last three years intensified.

The turmoil spread to stock markets around the world with the FTSE 100 index down 1.74pc or 93.86 points to 5297.28 in London and the Dow Jones Industrial Average off more than 1pc in New York.

Shares in Madrid fell 2.58 percent while Paris was down 2.24 percent, Frankfurt 1.81 percent and Milan 1.79 percent. The price of oil and gold were also on the slide on fears for the global economy.

It came as Paul Fisher, executive director for markets at the Bank of England, said the eurozone's survival was by no means certain.

"No one is trying to anticipate a euro break-up, but you just can't rule it out," he said.

The single currency crashed below $1.24 against the US dollar to levels not seen for nearly two years.

It remained stuck below 80p against the pound having lost 20pc of its value against the weak U.K. currency in the last three years.

Analysts warned that the euro has further to fall as the banking crisis in Spain threatens to tear the single currency bloc apart.

"The euro could go lower, maybe it can go down towards $1.20," said Jane Foley, a senior currency strategist at Rabobank in London.

The sentiment was echoed on Wall Street. "The market has lost confidence in the euro," said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale New York. "People are battening down the hatches."

It is feared that Spain -- the fourth largest economy in the eurozone -- will be the next domino to fall following the bailouts of Greece, Portugal and Ireland.

Madrid is struggling to get its creaking finances under control at the same time as rescuing its crisis-torn banking system and debt-ridden regions.

Spanish unemployment is the highest in Europe at nearly 25pc.

Analysts warned that bailing out Spain could tip the eurozone over the edge. "The Spanish economy is five times the size of Greece which makes many think the struggling nation is too big to bail out," said Peter O'Flanagan of Clear Currency.

The Spanish 10-year bond yield -- the benchmark borrowing cost for the Madrid government -- raced above 6.7pc, leaving it close to the 7pc danger zone that crippled Greece, Ireland and Portugal.

Borrowing costs in Italy also jumped back above 6pc as investors threatened to turn on Rome.

Higher bond yields indicate a lack of faith in a country's ability to pay its debts and make it more expensive for governments, businesses and households to borrow money.

But the U.K. gilt yield hit a record low of 1.64 percent yesterday as investors fled to so-called "safe havens."

The yields on the equivalent German bunds and U.S. Treasuries also fell to new lows of 1.27 percent and 1.65 percent respectively.

Craig Erlam, a market analyst at City trading firm Alpari, said the divergence on the bond markets was "the clearest sign of crumbling confidence in the eurozone to provide a solution." Chris Beauchamp, a market analyst at IG Index, said: "Without wishing to sound apocalyptic, it does feel as if Spain is gradually shuffling towards the abyss.

"Investor confidence wanes by the day, and it could only be a matter of time before the Spanish government is forced to ask for financial aid.

"This would be an event of a far greater magnitude than the bailouts of Ireland, Portugal and Greece, since Spain's size means it would exhaust Europe's financial firepower."