With signs emerging that the financial foundations of two of Euro Zone's founding members -- Italy and Spain -- are shaken badly by the worsening debt crisis, the continued existence of the euro area grouping has become doubtful, according to a major think tank.

Amidst fears that a bailout will be unavoidable if Italy and Spain wanted to bring down borrowing costs, the Centre for Economics and Business Research (CEBR) said in a note on Thursday that Italy is bound to default while Spain may just get away without having to do so.
It says Greece, Italy and Portugal are good candidates for bailouts going forward.

"If one Eurozone country defaults, the markets are likely to put pressure on the other weak economies and push up bond yields. This will in turn drag them down, making devaluating and thus leaving the euro increasingly attractive, which is why we are pessimistic about the chances of the euro holding together," CEBR said in a note on Thursday.

The note says Italy's position is precarious. The country's debt to GDP ratio is 128 percent. "... if the markets continue to force on them borrowing costs at around 6% and growth stays close to zero, our calculations show the debt GDP ratio rising gradually to over 150% by 2017."

In the case of Spain, the debt situation is slightly better. If banks are not being forced to take major capital losses on their property portfolios and therefore no additional financing of the banking sector by the government is required the country's debt-GDP ratio could realistically remain no higher than 75 percent.

The situation in Greece and Portugal are as bad as Italy's CEBR says. "Greece cannot sort out its debt problem and realistically the same is the case for Italy. Portugal is nearer to Italy, though its position is only about 85% as bad."