The International Monetary Fund has called on Spain to make urgent and far-reaching reforms of its economy.
The IMF says the country faces "severe" challenges, including the need to urgently reform a "dysfunctional" labour market, and its banking sector.
Spanish authorities had to rescue regional lender Cajasur at the weekend.
Last week, the government passed austerity measures to cut its deficit, which currently equates to 11% of Spain's economic output. This is substantially higher than the eurozone ceiling of 3%.
The BBC reports the IMF has highlighted a slump in the property market, heavy indebtedness in the private sector and weak productivity and competitiveness. Unemployment is more than 20%.
Last week, the Spanish government approved a 15 billion euro austerity plan, including a 5% cut to public sector salaries.
The move followed the financial crisis in Greece, which has a deficit amounting to 13.6% of GDP.
Amid fears that Greece could default on its debt payments and that the crisis could spread to Spain, the 27 member states of the European Union and the IMF have agreed for fund an emergency package worth 750 billion euros ($US975 billion).
This includes access to 440 billion euros of loan guarantees for struggling nations and 60 billion euros of emergency European Commission funding.
The remaining 250 billion euros comes from the IMF.