Eurozone governments have borrowed a record €110bn from the markets so far this year, forcing up borrowing costs for those countries with the weakest public finances as they pay a heavy price for their ballooning debt levels.

Investors warned that the yields, or interest rates, they will demand to lend to Greece and other peripheral economies, such as Portugal, Spain, Ireland and Italy, will continue rising until they are convinced they have put their finances in order.

But whereas Greece is a problem for the eurozone, Spain would be a disaster because it is the fourth-largest economy in the eurozone. Spain's unemployment rate stands at nearly 20%, and its domestic banking system is much weaker than that of Greece. "The eurozone could drift essentially with a bifurcation, with a strong center and a weaker periphery and eventually some countries might exit the monetary union. This is the very first test of the single currency bloc.", says Roubini.

Investors said the Greeks, and other peripheral economies, were facing both credibility problems and a threat of so-called crowding out.

This is where debt managers have to increase yields to lure investors because of competition from other governments.

The threat of crowding out will remain for a long while yet as governments will continue raising record amounts of bonds to pay off debts taken on to bail out the banks and reverse the downturn in their economies in the wake of the financial crisis. This week eurozone countries expected to borrow another €27bn ($38bn, £24bn), according to Barclays Capital, close to a weekly high.

Greece's deficit-cutting plan is ambitious but achievable, the EU economic and monetary affairs commissioner, Joaquin Almunia, said on Monday, warning however that Athens may have to take extra measures to shore up its finances.

The European Commission is due to publish recommendations on Wednesday on Greece's austerity plan to slash a double-digit budget deficit, which is a main reason Greece has taken a pounding in the markets for weeks.

Greece's financial problems have also sparked talk about a possible bailout by the EU and fears of a spill-over effect on other weak, heavily-indebted countries in the euro zone.

"What we are saying to the Greek authorities is: your stability program has established ambitious targets and objectives and we fully endorse these ambitious objectives," Almunia said in comments exclusive to Reuters.

"We consider that the achievement of these objectives in the coming three years, before the end of 2012, is absolutely necessary. These objectives are achievable but they are surrounded by risks."

Greece, which needs to raise 53 billion euros this year, succeeded in selling 8 billion euros of 5-year bonds last Monday -- but only at a high price.

It plans to sell more this month, but Finance Minister George Papaconstantinou said the next bond would have to be carefully timed to avoid having to pay unaffordable yields.