German Berenberg Bank's chief economist on Wednesday warned of a renewed market panic, amid recent surges in borrowing costs of Spanish and Italian governments.

The 10-year gross yield of Italian government bonds and the yield of 10-year note of Spanish government generic bonds took a upward trajectory, reaching 5.6 percent and 6 percent respectively on Wednesday.

Holger Schmieding, chief economist of Berenberg Bank, said the bond yields of Spain and Italy were still affordable for the two countries, but "the speed of the surge had elements of a renewed market panic."

"If fear feeds on fear, as has often been the case in previous waves of crisis, things could potentially get worse until a clearer signal from policy makers or some other good news breaks the negative near-term dynamic," Schmieding said.

Caught in a stubborn two-year-old eurozone debt crisis, Italy and Spain are now on the right track with supply-side reforms and fiscal repair, he said. He said that if market tensions do not calm down by themselves, a strong policy signal would eventually halt the market panic and largely reverse the recent market moves.

Schmieding added that a full-blown Spanish crisis is the one crisis which the eurozone could afford to have within the current policy setup. Following recent decisions to raise the eurozone's firewall, Europe could mobilize enough money to fully finance Spain through the end of 2014 if need be.

But Italy, the eurozone's third largest economy which shoulders a debt burden of 120 percent of its annual economic output, would be too big to be reliably protected by the eurozone firewall, Schmieding said, "only the ECB could reliably keep Italy out of harm's way if need be."