José Luis Rodríguez Zapatero, Spain’s Socialist prime minister, and Mariano Rajoy, the Popular party opposition leader, on Wednesday agreed to hasten the restructuring of the country’s troubled savings banks.

Their move came amid dire warnings from economists about a possible financial collapse and further contagion from the Greek sovereign debt crisis.

In their first one-on-one meeting for 1½ years, the two political rivals reached an accord to finalise plans for mergers and state-funded recapitalisations among the 45 cajas de ahorros by June 30.

They also agreed on a new law within three months to govern the cajas – regional savings and loans institutions with unclear ownership structures that are in most cases heavily exposed to the collapsing property market. In all, cajas account for about half the financial system, but the sector includes some of the country’s strongest institutions, such as Barcelona-based La Caixa.

Many smaller cajas are losing money and have little access to wholesale finance from abroad. The Bank of Spain is increasingly desperate to deploy the Frob, the “orderly bank restructuring fund” that was launched in June last year and can spend up to €99bn ($128bn, £84bn) to finance mergers and restructuring.

The rare meeting between the two party leaders in the prime minister’s offices in Madrid was overshadowed by violence in Greece, further declines in asset markets, widening yield spreads between German and Spanish bonds and gloomy predictions for the Spanish economy.

Freemarket International Consulting, an independent company based in the Spanish capital, said the probability of an “explosive combination” of debt crisis and the sinking of the cajas would make it difficult to avert an unprecedented “crash” before the summer.

“It will be very hard to avoid an economic-financial collapse of the country,” it said in a note on the economy released on Wednesday.

After his meeting with Mr Zapatero, Mr Rajoy said it was essential for Spain to reduce its public deficit further, restructure the financial system and reform the inflexible labour market. “The most important thing I said to the prime minister is that time has run out,” he said.

Mr Zapatero said the government remained committed to reducing the budget deficit from 11.2 per cent of gross domestic product last year to 3 per cent in 2013, but he rejected the idea of an accelerated deficit reduction plan.

“Cutting the deficit, yes. Doing it drastically, no, because it compromises economic growth,” he said.

In spite of flickering signs of economic recovery from the lows of last year – Spanish industrial production rose 5.4 per cent in March compared with a year earlier, the first increase in two years – financial markets remain focused on Spain’s large annual budget deficits and its need to raise €64bn more through bond issues before the end of the year.

Mr Zapatero’s room for manoeuvre is limited both by the cost of the fund to restructure the cajas and by Spain’s €9.8bn contribution to the Greek bail-out, which is financed by eurozone countries and the International Monetary Fund.

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