MILAN — Italy's borrowing rates touched a new euro-era high on Wednesday as a global market sell-off reignited fears that the debt crisis will engulf the eurozone's third-largest economy.
Premier Silvio Berlusconi will address parliament on the state of the economy in the evening, but opposition parties called for him to step down, saying his lack of economic credibility in the markets was part of the problem.
Spain was also under the market spotlight, forcing Prime Minister Jose Luis Rodriguez Zapatero to delay his vacation by two days to monitor the bleak scenario in the markets.
In a volatile day of trading, Italy's 10-year borrowing rate briefly spiked to 6.21 percent before easing to 6.04 percent, while Spain's edged down to 6.18 percent, from Tuesday's euro-era high of 6.45 percent. Both countries' yields have soared in recent days.
The revival of the debt crisis is mainly due to a global sell-off by traders of any investments that appear risky — such as the bonds of Italy and Spain.
Whereas both countries could continue borrowing at their current rates, their financing costs would increase, adding to the debt pile that is the source of market worries.
The fear is that the global market turmoil will push the two countries closer toward needing a bailout.
"The upward march in Spanish and Italian bond yields is evidence of the relentlessness of the sovereign debt crisis," said Jane Foley, an analyst at Rabobank International.
High yields show the additional interest investors demand to hold the country's debt, and underline how a government's financing costs could rise when they need to tap bond markets again. As fears of default increase, interest rates rise and make paying debt even harder in a vicious circle.
Italy's €70 billion ($99 million) austerity package passed last month aims at balancing the budget by 2014 but has done little to calm markets.
Opposition parties, commentators, economists and the non-partisan president have called for deeper reforms to encourage investment and growth and regain market confidence.
"At this moment, it is up to the political forces, both in the government and opposition, to work with civil society to make choices to decisively stimulate the indispensable growth of the economy and employment," President Giorgio Napolitano said in a statement.
Finance Minister Giulio Tremonti, meanwhile, traveled to Luxembourg to talk with Jean-Claude Juncker, the chairman of the Eurogroup meetings of eurozone nations.
"We had a long discussion visiting all the problems the euro area is facing and will continue our meditation in common," Juncker said.
Tremonti earlier spoke on the phone with the EU's monetary affairs commissioner Olli Rehn to discuss Italy's plans to reform its economy and measures to contain the debt crisis.
The turmoil added political pressure on Berlusconi, who will deliver his speech after markets close.
The main opposition party leader Pier Luigi Bersani said there was "global skepticism" of Berlusconi, while his deputy, Enrico Letta, said it was time for the premier to step down.
"He cannot be the one to propose solutions, seeing that he is a big part of the problem," Letta said.
Analysts did not expect Berlusconi, who is to meet with unions and business associations on Thursday, would propose a concrete agenda of new economic measures.
"It would be welcome to hear his pledge to come back again to the Parliament in a very short time ... to present a concrete and bipartisan action plan," wrote Unicredit economist Chiara Corsa in a note to investors.
Italy has debt nearing 120 percent of economic output, but had been viewed for months with calm by bond markets. The country has low levels of private debt and has not had the real estate boom and bust that caused trouble for the United States, Spain, and Ireland.
But it suffers from chronically low growth and investors doubt the government's willingness and ability to push through painful economic reforms.
Spain, meanwhile, is struggling to recover from nearly two years of recession triggered largely by the collapse of an overheated real estate sector. Burdened by a swollen deficit, the country is struggling to bring down a jobless rate that stands at a eurozone high of nearly 21 percent.
Zapatero delayed the start of vacation to monitor market developments, and was working in Madrid on Wednesday after dropping off his family in southern Spain a day earlier. Zapatero was set to hold an emergency meeting later with Finance Minister Elena Salgado and Development Minister Jose Blanco.
The prime minister has called early general elections, largely due to pressure from the financial crisis and because he wants a new government to manage the troubled economy from the start of the year.
By late morning in Europe, the Milan Stock Exchange had recovered from several days of massive losses to trade 1.2 percent higher, while Spain's main index was 1.9 percent higher.
Pan Pylas in London, Gabriele Steinhauser in Brussels and Alan Clendenning and Ciaran Giles in Madrid contributed to this report.