Monti, whose approval rating has slumped as new taxes take hold and recession bites, told Parliament in Rome: "We should use these new difficulties to double our efforts both on the European front and within Italian politics."
Four days after EU partners lent Spain's banks up to €100 billion, Madrid's sovereign debt rating was cut by three notches to Baa3 from A3 by Moody's, which noted the rescue plan for the banks will add to more government debt. Citing Madrid's own difficulties borrowing in the markets and weak economy, the agency said it could cut the rating further.
Market pressure on Spain caused the yield on its benchmark 10-year bond to climb to 6.75% at the close of yesterday's session, a new record for a eurozone country.
Moody’s also cut its credit ratings on Cyprus' sovereign debt by two notches, to Ba3 from Ba1, citing rising risks of a Greek exit from the euro currency and an already strained fiscal position.
Panic in Greece
Meanwhile, Greeks are pulling their cash out of the banks and stocking up with food ahead of the cliffhanger election that will have ramifications far beyond Athens, potentially threatening economic and monetary stability in Europe.
Bankers say up to €800 million is leaving major banks daily and retailers report some of the money is being used to buy pasta and canned goods, as fears of returning to the drachma are fanned by rumours that Syriza, a radical leftist party, may win the vote.
A Reuters poll of economists found that 35 out of 59 think Spain will follow Greece, Ireland and Portugal in needing a full state bailout within 12 months.
Still, 37 out of 59 expected the currency union to survive in its current form for at least another year - albeit with a very weak economy given the obstacles Europe's leaders face in trying to resolve the two-year old sovereign debt crisis.
"It's not a question of whether the crisis will get worse before it gets better, but rather it must get worse before it gets better," said Richard McGuire, a senior strategist at Rabobank International in London.
Obama calls Van Rompuy
In a sign of the concern growing at the White House that a failure in Europe to find the road back to growth might bar Barack Obama's path to re-election in November, the US president called EU Council head Herman Van Rompuy to discuss the financial crisis, a spokesman in Brussels said.
US Treasury Secretary Timothy Geithner said later that the European leaders maintained a strong political commitment to making the euro work.
Spanish Prime Minister Mariano Rajoy, speaking in Madrid, said that while each country had to take its own measures to clean up public finances and reform the economy, only closer European integration could solve the crisis.
"This situation can only be fixed by doing what must be done at home and with much more Europe and much more integration," the Spanish leader said. "The most urgent thing is that there should be more clarity on the eurozone."
Germany backs Monti
European Union paymaster Germany urged Italians to implement Monti's painful fiscal and economic reforms to stay out of the danger zone: "If Italy continues along Monti's path there will be no risks," German Finance Minister Wolfgang Schäuble said in an interview with La Stampa daily when asked whether Rome was next in the markets' firing line.
Monti met Schäuble in Berlin later and said Italy was preparing to sell state assets but did not need a new austerity program to meet its budget goals.
In remarks aimed at those in Rome and other capitals who are wary of German calls for closer harmony among eurozone governments on their budgets, Monti, a former EU commissioner, said it was better to "share sovereignty" in a union that to be subjected willy-nilly to decisions made by bigger powers.
Highlighting the peril for Italy, the eurozone's third biggest economy had to pay nearly 4% to sell one-year treasury bills at auction on Wednesday, a six-month high, due to fears about its ability to keep servicing its debt mountain.
Italy's €1.9-trillion public debt is equivalent to 120% of gross domestic product, a ratio second only to Greece. A month ago, Rome had paid just 2.34% on one-year paper.
Summit draft provides little detail
EU leaders plan to call for much stronger banking and fiscal integration and enhanced governance in the eurozone at a summit later this month, but draft conclusions obtained by Reuters left the details vague.
"Recent developments have demonstrated the need to take the EMU [Economic and Monetary Union] to a further stage," said the draft due to be discussed by EU ambassadors today (14 June).
"The new stage will build on deeper policy integration and coordination. There is a need for more specific building blocks centered around a much stronger banking and fiscal integration, underpinned by enhanced euro governance," it said.
The document said leaders of the 17-member currency area would hold a separate meeting right after the 27-nation EU summit to discuss a timetable for those reforms.