Spain’s borrowing costs hit a euro-era high yesterday amid sagging investor confidence that Europe can prevent its debt crisis from worsening and wrangling among policy makers over how to implement cross-border banking supervision.

The yield on Spanish benchmark 10-year debt hit 6.8 per cent just days after eurozone finance ministers agreed a €100bn bailout package for the country’s banks. The move was accompanied by rising bond yields in countries deemed less risky, such as Germany and the UK, where market interest rates have been at record lows.

“The crisis is deteriorating at an ever-increasing pace,” said Mark Schofield, a senior strategist at Citigroup. “Investors are increasingly pricing in either of the two tail risks – full eurozone break-up or fiscal union.”