Cameron hosts euro-crisis summit meeting

Also taking part in the meeting are Bank of England Governor Sir Mervyn King, Chancellor George Osborne, Financial Services Authority chairman Lord Turner, Deputy Prime Minister Nick Clegg and Chief Secretary to the Treasury Danny Alexander, said a Downing Street spokesman.

The spokesman declined to give details of the precise subjects on the agenda, beyond the fact that the meeting will “discuss the eurozone”.

But it is known that both the Treasury and the Bank of England are preparing contingency plans to protect the UK against any fallout from the possibility of Greek exit from the eurozone and the danger that this might trigger crises in other vulnerable states like Spain, Portugal and Italy.

Mr Cameron has been increasingly vocal in recent weeks about the need for the 17-nation eurozone bloc to “stand behind” the single currency or face its potential break-up.

Spanish concerns grow

Mr Clegg said last week that “nobody rational” could desire a Greek exit from the single currency, which he warned could spark a chain reaction leading to “grinding slowdown in economic activity” across Europe, including the UK.

Concern has grown over Spain, and troubled Spanish lender Bankia. Doubts over the country’s ability to finance itself has sent the nationalised bank’s share price plummeting and Spain’s borrowing costs soaring.

But Spanish Prime Minister Mariano Rajoy insisted that Spain’s banking sector would not need an international rescue. “There will be no rescue of the Spanish banking sector,” Mr Rajoy told a press conference.

Bankia shares down

However, he added that the government had no choice but to bail out Bankia which has been crippled by Spain’s real estate collapse.

“We took the bull by the horns because the alternative was collapse,” he said, stressing that Bankia clients’ savings were now safer than ever.

Bankia’s shares were down 21 per cent to 1.23 euros after trading following the bank’s announcement on Friday that it will need 19bn euros (£15.2bn) in state aid – the country’s biggest bailout – to shore itself up against its bad loans.

The interest rate, or yield, for 10-year bonds on the secondary market – a key indicator of market confidence in Spain’s ability to raise funds – jumped 17 basis points in morning trade to 6.46 per cent.

A rate of seven per cent is considered unsustainable in the long run.

Among the chief concerns surrounding Bankia’s request for state aid is just how Spain plans to fund the bailout. Bankia, a fusion of seven savings banks, was one of the banks hardest hit by Spain’s property collapse over the past four years.

It is estimated to have 32 billion euro (£25.6bn) in toxic assets. The Bank of Spain had already agreed to inject Bankia with 4.5bn euros (£3.6bn) in rescue funds last June.