ECB head Mario Draghi insisted earlier that the embattled single currency was "irreversible," damning speculative financial market bets against the euro for pushing up government borrowing costs to unsustainable levels.
But in the absence of concrete measures, the markets returned to the attack, with Spanish borrowing costs spiking back to danger levels above 7.0 percent and Madrid stocks slumping more than 5.0 percent as Italy was also hit badly.
United in adversity, Spanish Prime Minister Mariano Rajoy told a joint news conference in Madrid with his Italian counterpart Mario Monti that their "two countries want to work together" to get through the debilitating crisis.
"We are conscious that we are demanding great efforts from our citizens but we know that is the only way out," Rajoy said while Monti added: "The solution can only be found if we all do our homework."
Both rejected outright any idea that they would need an international bailout, pointing instead to Draghi's announcement in Frankfurt that the ECB might intervene on the government bond markets to drive down borrowing costs.
"A bailout, no. But actions to prevent that a country's borrowing costs become too expensive, these types of aids we should study," Monti said, adding that the issue had not even come up at the talks. "We did not discuss it."
"I think the ECB is highlighting that it will meet our objectives. The ECB president said the central bank should take the necessary actions," he said.
Last week, Draghi had promised he would do everything to save the euro, raising hopes the ECB would intervene directly on government bond markets to force down borrowing costs for the likes of struggling Spain and Italy.
He reiterated Thursday that the ECB was ready to do this -- but not just yet, while the bank kept its benchmark interest rate unchanged.
In face of growing pressures, the ECB "may undertake outright open market operations of a size adequate to reach its objective," he said, but added that the details would be worked out "in the coming weeks."
Whatever the circumstances, Draghi said it was "pointless" to bet against the euro. "It stays. It stays. It stays," he insisted.
Rajoy welcomed Draghi's remarks on possible bond purchases, even as the adverse market reaction put Madrid back in focus as the next eurozone state to perhaps need a massive EU-IMF bailout.
"It is a positive statement," Rajoy said.
Analysts were more critical, noting that the markets felt let down after Draghi last week had promised that the ECB would do all in its power to safeguard the euro.
Most had taken his comments then to mean the ECB would step into the bond markets, effectively acting as a backstop to prevent eurozone borrowing costs crippling governments desperately trying to balance the public finances.
The euro briefly topped $1.24 after Draghi spoke but then plunged when there were no follow-through measures, hitting $1.2174 in late trade.
"As markets digest the fact the ECB has done nothing concrete to sort out Spain's problems, $1.20 comes back into view," said research director Kathleen Brooks at trading site Forex.com.
The International Monetary Fund meanwhile called for more action in Europe as the crisis undercuts global growth prospects.
In an unusually forthright statement, the IMF insisted "further monetary easing and unconventional support would ease tensions as other policies are implemented and take effect."
Analysts said Draghi's remarks appeared intended to remind the markets that the ECB was ready to act but in the absence of anything concrete, investors opted to take their money off the table.
The intervention signal "clearly ... is intended to be an open ended threat" to deter investors betting against the euro, said Charles Diebel, head of market strategy with Lloyds Bank.
"This is all a valid plan but the market is taking it as more like jawboning than something material. Once again this is the big question," Diebel said.
"I think the sceptical take from the markets is understandable but I would caution that Draghi is likely to follow through with actual actions. But, it's conditional on the governments following through as well," he added.
The Bank of England also held its monthly policy meeting Thursday and left its main interest rate steady at 0.50 percent while announcing no change in its Quantitative Easing (QE) stimulus policy.