Italian Prime Minister Silvio Berlusconi on Tuesday urged parliament to adopt sweeping budget cuts quickly, as Italy and Spain moved to stem financial market contagion from Greece's debt crisis.
"We are on the frontlines in this battle," Berlusconi said in a statement, calling for austerity measures to be approved in "a very short time frame."
"We have to be united and cohesive in the common interest," he said in a statement, as parliament promised adoption of the plan by the end of the week.
Spanish Prime Minister Jose Luis Rodriguez Zapatero meanwhile dismissed investor jitters, saying Spain's ability to repay debts "has every guarantee."
Zapatero told a news conference that Spain's borrowing costs had risen but said there should be "absolute calm" about the financing of the state.
The benchmark FTSE Mib index in Milan inched up 0.13 percent in afternoon trading, after plunges of more than three percent on Friday and Monday.
The IBEX-35 index in Madrid was still down 1.37 percent however.
Italy wants to reduce the budget deficit to 0.2 percent of output by 2014 from 4.6 percent last year but is struggling with one of the highest debt levels in the world and one of the lowest growth rates in Europe.
Berlusconi defended his government's economic record in recent years, saying: "Our ability to control public finances after the explosion of the financial crisis in 2009 has been superior to other countries."
He dismissed rumours of infighting within his cabinet, saying: "The government is stable and strong, the majority is cohesive and determined."
Berlusconi also praised the performance of Italy's banks, saying they had "responded well to calls to further increase their capitalisation."
Banks have suffered some of the sharpest falls on the stock market.
Economy Minister Giulio Tremonti meanwhile quit talks with his European Union counterparts in Brussels early to rush home to deal with the situation.
"I am returning to Rome to complete my austerity plan," he said.
The government unveiled a draft plan worth some 40 billion euros ($56 billion) last month. The main centre-left opposition Democratic Party has said it will vote against but will not impede its rapid adoption in parliament.
Debate on the measures is set to start in Italy's parliament on Wednesday.
German Chancellor Angela Merkel spoke to Berlusconi earlier and said the austerity plan would send "a very important signal" to the markets.
Investors on Tuesday also responded well to a successful issue of 6.75 billion euros ($9.39 billion) in one-year Italian bonds, albeit at a rate of 3.67 percent compared to 2.147 percent for a similar operation last month.
Italian Foreign Minister Franco Frattini meanwhile lashed out in a newspaper interview at what he said was a "purely speculative" financial attack on Italy.
"It's a purely speculative attack because our banks are doing better than those of other countries," Frattini told La Repubblica daily.
"We haven't had a Spanish property bubble or an Irish financial bubble and we don't have Greece's public finances," he said.
In Spain, which has also been caught up in the European financial maelstrom of recent days, Finance Minister Elena Salgado said there was no reason for the market turmoil because both Italy and Spain had strong economies.
"There is no logic to Spain or Italy being affected by the market instability," Salgado told Spanish radio Cadena Ser.
"We have strong, diversified economies which have always faced up to the problems and so if we are capable of transmitting that determination to everyone, reasonably the markets have to calm down," she said.
Spain's economic crisis, triggered by the 2008 property bubble collapse and the international financial crisis, sent the unemployment rate soaring to 21.29 percent in the first quarter of 2011.
But Spain insists it should not be lumped together with bailed-out Greece, Ireland and Portugal because it has a relatively low overall public debt and is taking tough measures to reform the economy.
Madrid has strengthened bank balance sheets, cut state spending, raised the retirement age, reformed collective bargaining and agreed to sell state assets including the national lottery.