The shock decision by Greece to hold a referendum on a euro zone debt plan alarmed investors and pushed Italian sovereign borrowing rates up sharply and German rates down to below 2% today.

Italian 10-year bond yields, already under pressure yesterday, stood at 6.227% this evening, trading up from 6.081% and close to their record level of 6.397% reached in August, when the government was forced to adopt emergency austerity measures.

Yields on Spain, also seen as a potential next victim of the euro zone debt crisis, rose to 5.57% from 5.526% yesterday. Irish yields were also higher today, touching levels of just under 8.4%.

For more solid countries, still holders of top notch AAA debt ratings, yields dropped. Yields on German benchmark bonds fell sharply to 1.846% from 2.024% yesterday. French benchmark yields also fell to 3.024% from 3.094%.

The spread between rates on Italian 10-year government bonds and benchmark German ones meanwhile widened to a new record of 4.37 percentage points.

Yields measure the confidence investors have in a country's debt and yesterday's announcement that Greece would hold a vote before accepting a default deal agreed by leaders in Brussels last week boosted yields for the euro zone's more fragile countries.

Italy's Berlusconi vows reform

Italian Prime Minister Silvio Berlusconi repeated today that reform measures promised at an EU summit last week would be applied with determination and he would explain them to leaders from the Group of 20 economic powers in Cannes this week.

At the same time, Enrico Letta, a senior member of the centre-left Democratic Party said that the party had presented a request to President Giorgio Napolitano to appoint a new government to deal with the crisis facing Italy.

As yields on Italian bonds rose to record levels above 6%, Berlusconi said Greece's decision to hold a referendum on the terms of a bail-out package was weighing heavily on markets.

"This was an unexpected choice which is creating uncertainty after the recent European Council meeting and on the eve of the important meeting of the G20 in Cannes," he said in a statement.