Spain got caught up in the uncertainty surrounding the European single currency and the electoral stalemate in Greece Monday as it saw its borrowing costs rise and stock prices fall at alarming rates.

The country's foreign minister issued an urgent appeal Monday to the rival political parties in Athens to form a government quickly and warned that the survival of the single currency project was at stake.

"The best thing Greece can do for its own survival and for the survival of European economic and monetary union in the current situation is to form a government as soon as possible and say as soon as possible" that Greece is going to comply with the terms of its bailouts, Jose Manuel Garcia-Margallo said in Brussels.

Investors are worried about the future of the 17-country euro currency bloc as political parties in Greece have failed to create a coalition government a full week after general elections. Investors fear that because Greeks voted heavily in favor of parties that want to either cancel or renegotiate Athens' international bailout, the country may be forced to default and, ultimately, leave the eurozone.

Uncertainty over the financial impact of such a move on the wider continent caused markets to fall sharply over the past week. Spain, which is considered the next most likely country to need a bailout in Europe, has been shaken particularly hard.

The Ibex stock index in Madrid was down 3.2 percent in late afternoon trading Monday — more than other European markets — while the interest rate the country has to pay for its 10-year bonds in the secondary market — where issued bonds are traded openly — rose sharply.

In afternoon trading, the yield on benchmark 10-year bonds was up 0.26 of a percentage point to 6.25 percent, according to financial data provider FactSet. In comparison, the yield for the benchmark German bund — seen a safe refuge in turbulent times — fell to 1.44 percent.

Interest rates, or yields, of 7 percent are considered too expensive for a government to continue borrowing at over the long term. Spain's 10-year yield hit 6.7 percent late last year.

Garcia-Margallo called the situation there "enormously worrisome" but would not say if Spain supported the idea of Greece leaving the euro if it fails to live up to austerity goals set as terms for the bailouts.

The minister spoke after Spain managed to raise €2.9 billion ($3.8 billion) in a short-term bond auction on Monday. The Treasury paid a rate of 3 percent to sell €2.2 billion ($2.8 billion) in 12-month notes, compared with 2.6 percent in the last such auction April 17. It paid 3.3 percent to sell €711 million ($920 million) in 18-month notes, up from 3.1 percent.

Demand for the bonds was good — about double the amount offered in the 12-month category and nearly triple for the 18-month notes. The total amount sold was just short of the upper target of €3 billion ($3.9 billion).

Investors will keep an eye on Spain's next big debt auction on Thursday, when it will sell notes maturing in 2015 and 2016. According to the Economy Ministry, Spain has met 53 percent of its medium- and long-term financing needs planned in its 2012 budget.

The financial turmoil in Spain in recent days has also been caused by concerns about the country's banking sector, which the government last week sought to reform. On Friday, Spain told banks, which are still struggling following a collapse of a property bubble in 2008, to set aside tens of billions of euros more in provisions to offset exposure to bad real estate loans.

"Naturally, that hurts profits. Naturally, the financial sector does not like that," said Oscar Moreno of Madrid brokerage Renta4.

Last week's financial sector reform was Spain's fourth in two years. None so far has managed to fully convince investors who worry that bank failures might overwhelm public finances and that the government would be unable to carry out austerity measures and reforms at a time of recession.

The austerity measures are aimed chiefly at slashing the government's deficit from 8.5 percent of economic output to below the maximum level set by the European Union of 3 percent by 2013. For this year, the goal is 5.3 percent.


Daniel Woolls contributed to this report