Former US finance chief says euro is 'breaking down'

He added: "That stuff [eurozone country bonds held by banks] has always been thought of as the ideal collateral and now it’s getting highly questionable."

Greenspan explained that northern countries, such as Germany and Finland, have a culture of budgetary discipline while southern nations, such as Greece, historically consume more than they produce and build up debt.

"The problem is that there is a growing cleavage in the economic and analytical and banking circles as to whether the euro, which is the crucial issue here, should be 17 countries with very significantly different cultures ... That cannot go on," he said. "The general feeling out there is of a lull before the storm."

Greenspan's remarks - widely reported by financial newswires - saw the euro dip against the dollar and the cost of German goverment bonds, viewed as a safe haven, tick upward.

His comments came out the same day as Spain moved a step closer to the northern model.

Opposition leader Mariano Rajoy told MPs at an emergency meeting of the Spanish parliament on Tuesday that his Popular Party will back government proposals to insert borrowing limits into the country's constitution. "My parliamentary group is ready to support the initiative and facilitate its implementation," he said. MPs also voted through €5 billion of extra savings by - amid other measures - switching to generic drugs in the health service.

The constitution move follows a similar pledge by Italy after Madrid and Rome's cost of borrowing shot up last month.

Eurozone leaders in July agreed a second bailout package for Greece and new bond-buying powers for its crisis-fund, the EFSF, in a bid to calm markets. But the deal - which allows lending countries to ask Greece for collateral "where appropriate" - is proving hard to implement.

Finnish Prime Minister Jyrki Katainen at a party conference in Tampere on Tuesday said he is willing to modify his request for Greece to put up to €600 million in an escrow account as a guarantee.

But he refused to drop the plan despite criticism from Austria and the Netherlands. "Our responsibility is to seek a solution which will be acceptable and tolerable to other eurozone nations," he said.

Austrian finance minister Maria Fekter on Tuesday indicated that Vienna will block the Finnish deal because it increases costs for fellow lenders. "Many countries reject the solution that Finland negotiated for itself to the disadvantage of all others ... If there is collateral for one country, then all others must be treated the same way too," she told press in the Austrian capital.

Germany has also being dragged into the collateral dispute after a senior member of Chancellor Angela Merkel's CDU party said Berlin should seek guarantees.

"Several states are making big efforts to service their debt. This must be honored. But to keep up those efforts in the long term, collateral is needed," labour minister and CDU deputy chairman Ursula von der Leyen said on German TV.

Eurozone capitals are currently in talks on collateral at "expert level" amid speculation that leaders will need to call another summit to reach agreement.