The cost of borrowing for Spain has reached a worryingly high level, making it unsustainable for the country to borrow money to service its debts.
Spain's 10-year government bold yield has now hit the watershed 7% mark for the first time ever, a day after the country was downgraded by ratings agency Moody's.
Ireland, Greece and Portugal all required bailouts when their bond yields reached 7%, although Spain is a much larger economy.
The ongoing crisis weighed on equity markets with the FTSE 100 Index in London falling nearly 1%, while Germany's Dax and the Cac-40 in France also fell into the red.