A sharp spike in yields of Spanish and Italian bonds has led the two countries' leaders to call for a strong message in defense of the euro project. Growth is pivotal, they say, and Greece must be kept in the eurozone.
The risk premium on Spain's and Italy's sovereign debt soared Wednesday, as the threat of a Greek eurozone exit was shook the single currency area.
The yield on Spain's benchmark 10-year government bonds spiked to a peak of 6.51 percent, hitting a level considered too high for the state to refinance its debts.
The 10-year Italian bond yield opened at 6 percent, the highest rate since January 31, before slipping to just below 6 percent in trading later in the day.
By contrast, Germany paid an average rate of 1.47 percent at an auction of 10-year bonds on Wednesday, as risk-averse investors flocked to German sovereign debt seen as safe haven.
Describing Spain's refinancing situation as "very complicated," Prime Minister Mariano Rajoy said he would like to see "a clear and forceful message in defense of the euro project and an affirmation of the sustainability of public debt of all the European countries.
"Austerity, yes, growth too," Rajoy told reporters in Madrid, adding that his government was taking the measures "that must be taken" as he was pushing through sweeping cutbacks despite a recession and a 24-percent jobless rate.
Italian Prime Minister Mario Monti called for decisive EU action in a telephone conversation with US President Barack Obama late on Tuesday. The two leaders "agreed on the need to intensify efforts to promote growth and job creation," according to a statement issued in Washington on Wednesday.
Greece crucial to euro
Renewed alarm spread across international financial markets Wednesday as Greece called new elections after talks to form a government had failed over differences on the country's austerity measures.
Sensing danger of contagion from a Greek bankruptcy, the Spanish prime minister said that he didn't want "Greece to leave the euro."
"I think it would be an enormous mistake," Rajoy added. "I think we have to guarantee the sustainability of public debt and then all of us comply with our commitments."
A report by Citigroup Global markets, quoted from by AFP news agency, said pressure on Spanish debt was "rising" and would probably require a "bailout by the troika" of the EU Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF).
However, Natalie Aguirre, director of analysis at brokerage Renta 4, told AFP that a solution for Spain could also lie in "easing the pace of adjustment," meaning that eurozone members must agree on "a new timetable for deficit reduction that allows more space for economic growth."
uhe/sms (AFP, dpa)