Spain's debt risk premium shot to another record high Wednesday, forcing the prime minister to interrupt his holiday for a crisis meeting on the market turmoil.
The premium demanded for buying Spanish 10-year bonds over safe-bet German bonds surged Wednesday morning to 407 basis points -- the highest since the introduction of the euro in 1999 -- before easing.
It was the second day in a row that investors had pushed the premium on Spanish government debt to a record high, fearing that Madrid's problems will only get worse as economic growth slows.
The dangerous new turn in the eurozone debt crisis threw Prime Minister Jose Luis Rodriguez Zapatero's holiday plans into disarray.
After delaying his departure to Donana, southern Spain, for several hours on Tuesday, he finally left late in the day but only to accompany his family. The same night, he returned to Madrid to deal with the crisis.
Zapatero will now meet Finance Minister Elena Salgado in the afternoon to "analyse the latest financial market movements," the prime minister's office said in a statement.
The Spanish leader made at least 10 telephone calls to discuss the market developments, his office said.
In a call to European Union President Herman Van Rompuy, the pair agreed that a new eurozone rescue plan for Greece must be implemented as soon as possible to soothe markets, it said.
The eurozone debt crisis has already claimed Greece, Ireland and Portugal, forcing them to seek bailouts from the European Union and International Monetary Fund.
There are growing fears the Italy and Spain, the eurozone's third- and fourth-biggest economies, could be next in line, developments that would dwarf previous bailouts and could undermine the euro itself.
The market turmoil strikes at a delicate time in Spanish politics and finances, with a government bond auction scheduled for Thursday to raise 2.5-3.5 billion euros ($3.6-5.0 billion).
The economic crisis led Zapatero on Friday to call general elections, in which he will not run, for November 20, four months early.
He is giving updates to his former deputy, Alfredo Perez Rubalcaba, who is now the ruling Socialist Party candidate for premier, and to the leader of the conservative opposition Popular Party, Mariano Rajoy.
The government will hold cabinet meetings on August 19 and 26 to decide new measures to battle the crisis, the premier's office said.
Moody's Investors Service warned Friday that it planned to downgrade the country's "Aa2" credit rating.
Spain, with an economy the size of those of Greece, Ireland and Portugal combined, says it should not be lumped together with the three lame ducks now under EU and IMF rescue programmes.
Madrid argues it has pursued tough reforms including raising the retirement age, relaxing collective bargaining rules, making it easier to hire and fire employees, cutting civil servant wages, forcing banks to bolster their balance sheets and placing assets such as the national lottery on the block for sale.
Spain, like Italy, continues to suffer from the risk of contagion from the eurozone debt crisis.
Angel de Molina Rodriguez, director of analysis at Spanish brokerage Tressis, said there was no valid economic argument to sustain the leap in Spain's risk premium.
He called on the European Central Bank to take clear action to scare off speculators.
"We don't really understand the absence of anyone imposing their criteria and calming the markets," he said.
"If they don't take more serious measures to chase out the speculators via a bond purchase or concerted action with other central banks -- because this affects everyone in the end -- at least they can send a message to say that this cannot carry on and there will be measures taken."
Moody's said that the pressure on Madrid could be exacerbated by fears over the new European deal to rescue Greece which had "created a precedent" by involving the private sector and signaled a growing risk for investors holding bonds in the fragile countries of the eurozone.
A July 21 summit of eurozone policymakers, where they agreed alongside the private sector to pour another 159 billion euros ($226 billion) into Greece, was supposed to stop debt contagion spreading across Europe.