Italy saw its cost of long-term borrowing fall slightly in an auction on Thursday morning. The country sold €2.5bn (£2.1bn) worth of 10-year bonds at an average yield of 6.979% - still high, but just below the 7% mark which is widely seen as being unsustainable.

Policymakers have been hoping that a massive release of cheap three-year loans before Christmas by the European Central Bank (ECB) would give banks the confidence to buy the debt of sovereign nations at lower yields and ease their cost of borrowing, allowing them to inch back towards solvency.

An auction of €9bn worth of short-term Italian debt on Wednesday gave brief hope, as yields on six-month bonds fell to half of the 6.5% that investors had demanded a month ago.

The euro hit a 10-year low against the yen on Thursday morning as Japanese and international investors move back towards safe haven currencies. Despite remaining relatively strong against the dollar over the course of the summer and autumn, the past month has seen the euro slip back to 11-month lows.

The UK's cost of borrowing also dropped to 1.962% on Thursday morning, as investors flocked to gilts, which are also seen as a safe haven.

Data released on Thursday showed that growth in the eurozone's money supply had tightened in November, although the period does not cover the nearly €500bn injected into the banking system by the ECB.

Loan growth in the single currency area also fell, as companies cut back on their lending in light of worsening economic forecasts.