Financial panic flaring in Italy (AP) MILAN - Italian Premier Mario Monti saw nearly seven months of confidence-building by his government wiped out by Wednesday, when the country's borrowing rates in a bond auction skyrocketed back near levels last seen in December. A sale of 12-month bonds, a warm-up for Thursday's weightier longer-term debt auction, demonstrated the speed with which market jitters spread from Spain following Madrid's weekend concession that its banks need a bailout. Italy paid an interest rate of 3.972 percent up from 2.34 percent in a similar auction last month to borrow euro6.5 billion ($8.12 billion) in 12-month money from bond markets. Though demand was strong, the high rate suggests investors worry Italy may eventually need a rescue of its own. Italian yields skyrocket on 12-month bond auction World stocks struggle as crisis fears weigh Watch: Euro crisis -- How to protect your money "Contagion is back with a vengeance, and Italy is bearing the brunt of the fallout from Spain's request for external assistance," sovereign debt expert Nicholas Spiro said. Markets, he noted, are no longer differentiating fiscally-stronger Italy from Spain, "which is a sign that panic has set in." Just before the debt sale, Monti urged lawmakers to speed the pace of reforms in a bid to persuade skeptical investors whom he referred to as "observers that don't nurture an innate sympathy for our country" that Italy is able to make the necessary economic sacrifices to escape the debt crisis. Although Italy's deficit is relatively low, at 3.6 percent of GDP compared with Spain's 8.9 percent, the economy is not growing and overall debt is huge, at euro1.9 trillion ($2.4 trillion). To lower that debt, the economy needs to become more competitive. To achieve that, Monti's technocratic government passed a package of tax hikes and spending cuts in December, and has been moving ahead with structural reforms. However, lobbies and politicians have been resisting the reforms, raising concern that political infighting might as so often in the past hinder the country's ability to fix its economy. Public dissatisfaction with austerity measures has also been increasing. Trust in Monti has plunged from 70 percent when he took office in November to 40 percent last week, according to a survey of 1,000 people by the EMG polling agency for La7 private television. The June 7 and 8 poll has a margin of error of 3.1 percent. Monti admitted that the country must complement its painful budget cuts with measures to stimulate economic growth. "We need to have fiscal discipline and growth policies for fiscal policies to be sustainable in the long term," he said in Berlin, where he was to receive a leadership award. Getting the economy growing again will be key to restoring confidence in the country. The recession is deepening the economy shrank a staggering 0.8 percent in the first quarter and households and industry are wary of spending. At Rome's once-bustling Trionfale food market, just a few shoppers browsing the food stands Wednesday morning. Baker Roberta Massaroli said she had to let go the nine people who once worked for her. "Have you looked around here?" said Mario Lorenziti, a shopper. The market is half-empty. And if a market like this is half-empty it means that business in general is going to pieces. Monti convened the leaders of the top political parties Wednesday night to urge them to accelerate parliament's adoption of key reforms and repeated the message in the lower house. "The efforts that Italians have made and are making are difficult, but it would be even more difficult to accept, and the sense of alienation and frustration would be greater, if these forces were dictated" from outside, Monti told lawmakers earlier in the day, ahead of a vote on anti-corruption measures. The government survived three votes of confidence on the most controversial parts of the measures, which will be voted on Thursday. Among the measures the government has had to compromise on is a labor reform package that was passed by parliament after being watered down, allowing judges to order companies to reinstate workers fired for economic reasons. Meanwhile, an important pension reform has become mired as the government and the state pension agency quibble over figures. As Italy saw its bond yields rise this week amid concerns over Spain and the wider 17-country eurozone, the Austrian finance minister suggested Italy may also eventually need a bailout. She quickly backtracked on the remarks, however, after Monti and other European officials criticized them as inappropriate and counterproductive. Monti firmly denied Italy will need outside assistance to keep up with payments on its debt, noting Wednesday that public finances are on much better footing than a few months ago. Italy is negotiating with both Switzerland and San Marino on deals to recoup revenues from money Italians have illegally stashed abroad. The deal with Switzerland alone could net up to euro40 billion, by some estimates. He also made it clear that a broad European action plan is needed to avoid a spread of market panic from Spain to other countries like Italy, calling for concrete measures to be agreed at a June 28 EU summit. He said that such measures as eurobonds - or jointly issued European debt to spread risk favored by France and Italy but opposed by Germany - don't need to be introduced this year, but should at least be in the early stages of planning. Paola Barisani and Trisha Thomas in Rome contributed to this report.