SPAIN and Italy appealed to European politicians to step up their response to the financial crisis after the €100bn bailout for Spanish banks failed to calm markets.
Spanish Prime Minister Mariano Rajoy said he would "battle" central bankers refusing to buy debt from peripheral nations. Mr Rajoy published a letter to European Union leaders calling for the European Central Bank to buy debt from the countries struggling to shore up their finances.
"That is the battle we have to wage in Europe," Mr Rajoy told the Spanish parliament yesterday. "I am waging it."
His Italian counterpart, Mario Monti, told parliament in Rome that Europe faced a "crucial" moment.
The comments came as European Commission President Jose Manuel Barroso told the European Parliament that the continent was in a "social emergency" that required closer union.
"We are now in a defining moment for European integration," he said.
In France, the government said it is pressing other European Union leaders to agree a financial stability package to stem the eurozone crisis following the negative reaction to Spain's bailout.
The new government of Francois Hollande plans to unveil a package of measures to put the European Central Bank in charge of bank supervision and to use the European Stability Mechanism to recapitalise banks directly.
The measures could be discussed at the summit later this month devoted to the crisis.
The leaders of Spain and Italy went on the offensive as bond yields jumped following the announcement of a bailout for Spanish banks that was intend to quell concern over the countries' finances. This wiped out the effects of €1.1tn in ECB loans for euro-region banks that has held yields in check since December.
"The crisis will inevitably roll on to the next domino, and that's Italy," said James Nixon, chief European economist at Societe Generale in London.
Italy sold €6.5bn of one-year bonds at the highest cost since December yesterday. The 364-day bills were priced to yield 3.97pc, but the bid-to-cover ratio fell to 1.73 from 1.79. At the last auction of similar bonds, Rome paid 2.34pc, according to Bloomberg.
Meanwhile, one Spanish newspaper reported yesterday that Spain won't have to start repaying the €100bn loans linked to the country's bailout for another five years.
The report by Madrid-based 'El Mundo' newspaper has not been confirmed but would pose difficulties for the Government here which is under pressure to secure a bailout deal that is as advantageous as the Spanish deal.
'El Mundo' added that Spanish Economy Minister Luis De Guindos warned finance ministers during weekend talks that a full bailout of Spain would cost €500bn and force a bailout for Italy.