Italy and Spain both insisted yesterday their economies, and with them the future of the euro, were secure from the debt crisis that has floored Greece.
Speculators have stepped up attacks on the two southern European economies - the third and fourth-largest in the eurozone.
In both countries, borrowing costs have soared while stock markets and the euro have fallen back - despite pledges from eurozone finance ministers that Italy and Spain were committed to slashing their debt levels.
Ireland's credit rating was cut to junk status and Moody's Investors Service added that there was a danger that the country will need more bailout aid in late 2013 when the current European Union-International Monetary Fund support programme ends.
The developments came as Greece, swamped for more than a year by a growing sovereign debt crisis, rejected a rescue deal proposed at an emergency European Union finance ministers' meeting in Brussels that involved a partial default on its debt repayments.
The plan had won support among several countries, as well as from Christine Lagarde, the new International Monetary Fund chief.
After the Brussels meeting, Italy's Finance Minister Giulio Tremonti said he was "leaving to wrap up the Italian consolidation package", which pledges to cut spending by €47 billion ($80 billion) and wipe out Italy's deficit by 2014 by cutting local government grants, health and pension spending.
At almost 120 per cent of national income, Italy's debt is second only to Greece relative to the size of its economy. In Britain, debt stands at about 60 per cent of income.
Italian Premier Silvio Berlusconi said the country had "to be united and cohesive in the common interest".
The Opposition has indicated it will work with the Government to pass packages quickly to reassure markets.
The German Finance Minister, Wolfgang Schaeuble, said Italy's austerity package was "ambitious" but he was confident it would be approved. He even sought to divert attention from the larger economies.
"We haven't spoken much about Italy, because we're convinced the core of the crisis is Greece," he said.
Spanish Prime Minister Jose Luis Rodriguez Zapatero stressed the measures his Government had taken to reduce debt levels and placate markets.
Spain has slashed public wages, frozen pensions, increased the retirement age and cut state subsidies.
Spain's Finance Minister Elena Salgado said that Italy and Spain had "strong economies" and there was no logic to either being affected by market instability. But most financial pundits believe the crisis for both - and for Europe's political and financial future - is far from over.
EUROPE'S MOST INDEBTED COUNTRIES
Debt as percentage of GDP*
*On constant basis
- IndependentBy Michael Day