World markets cast Spain back to the centre of the eurozone debt storm Monday, pushing its borrowing rate to a euro-era record and dashing hopes for a respite after Greek elections.
Investors fled on fears the crisis could topple the eurozone's fourth largest economy, Spain, and even number-three economy, Italy, despite the Greek vote giving pro-bailout parties a chance to govern.
Sunday's elections put Greece's conservative New Democracy party in the lead, with enough seats to form a ruling coalition committed to austerity measures set out in the nation's 130-billion-euro ($165 billion) European Union-IMF programme.
"The country does not have a minute to lose," said New Democracy party leader Antonis Samaras. Greece's socialists said they hoped for a unity government as soon as Tuesday.
The financial markets, however, gave almost no time for a pause.
After a brief rally on the receding prospects of a disorderly Greek euro exit, European equities quickly pulled back. Spanish and Italian stock markets each closed nearly three percent lower.
On the government debt market the rate of return investors demanded to hold 10-year Spanish bonds leapt to 7.144 percent -- the highest level since the birth of the euro in 1999 and a rate regarded as unsustainable over the long term -- from 6.838 percent late on Friday.
The gap with the yield on German 10-year bonds, the eurozone benchmark, widened to a record 5.89 percentage points.
Italy's bonds, too, traded above six percent.
"Despite the fact that this has been sold as a victory for Europe, in fact the situation Greece is in is no better than it was and in fact quite a lot worse than it was three months ago," said Edward Hugh, a Barcelona-based economist.
"Three months have gone by and not a lot has been done. And the reality is they want to renegotiate in some way even though they say they support it," he added.
For Spain, the market reaction was bad news, Hugh said.
"There is no bounce from the Greek election and what bounce there is is in the opposite direction," he said.
Spain faces two significant tests this week, when it issues up to three billion euros in 12- and 18-month bills on Tuesday and up to two billion euros in two-, three- and five-year bonds on Thursday.
Investors worried about the risk of a full-blown Spanish bailout, Hugh said, despite a June 9 eurozone agreement to loan Madrid up to 100 billion euros to save banks exposed to the collapsed property sector.
The exact figure to be requested will be set after an audit carried out by two international consultant groups, Oliver Wyman and Roland Berger, due by Thursday but expected imminently.
Montserrat Formoso, head of portfolio management at Spanish brokerage Tressis, said the key worry of the markets was no longer just the risk of a state bailout for Spain.
"At this time it is not Spain but the euro in general," she said.
"Now it is directly the future of the euro."
Meanwhile, the bad numbers kept rolling in for Spain.
The mountain of doubtful loans held by Spain's banks surged to a new 18-year record of 8.72 percent of total loans against 8.37 percent in March and 8.15 percent in February, the Bank of Spain said Monday.
The IMF warned Friday that Spain must implement comprehensive reforms to win back market confidence even after securing the rescue loan for its banks.
Among the hardest to digest:
-- Raising value added tax (VAT) now -- a step the ruling Popular Party had promised not to take during its election campaign;
-- Immediate legislation on future public wage cuts;
-- Separating "non-viable banks" from those that need no aid and those that are viable but need support.
It also advised delaying some of the austerity squeeze on the economy, which is in recession and suffering a 24.4 percent unemployment rate.
But Prime Minister Mariano Rajoy, in an informal briefing to Spanish media at the weekend, reportedly said he would not be following the IMF advice on VAT or public wage cuts.
Rajoy, upon his arrival in Mexico for a meeting of leaders of the world's top 20 economies centred on the unfolding crisis, said "I think what we are going to transmit is a message of confidence in the euro."
Spain's public debt rose to 72.1 percent of gross domestic product in the first quarter of 2012 from 63.6 percent in the same period a year earlier, according to latest central bank data.
The ratings agency Moody's Investors Service, which slashed Spain's rating to one notch above junk bond status last week, projected the public debt would hit 90 percent of GDP this year.