Italy got very rough treatment from the markets on Tuesday as a shock referendum on Greece\'s latest bailout plan threatened to undermine Premier Silvio Berlusconi\'s efforts to stave off contagion from Europe\'s debt crisis. Stocks crashed 7.07 percent, government borrowing rates soared and the spread between Italian and German benchmark 10-year government bonds widened to a record 455 basis points, reflecting investor distrust of Rome. \"Spread goes sky high, stocks go to hell,\" said the Italian financial news website firstonline.info, calling Greek Prime Minister George Papandreou\'s announcement that Athens will hold a vote on its bailout deal \"a catastrophe.\" The Greek move, which sent shockwaves through global financial markets, sparked an angry reaction from the embattled Italian prime minister. \"There is no doubt the Greek decision to hold a referendum on the European Union\'s rescue plan is having a negative effect on the markets. This is an unexpected decision that generates uncertainties,\" Berlusconi said. He added that the Italian government was working on economic measures to be outlined at the G20 summit in Cannes this week and promised to implement them \"with the awareness, the discipline and the speed demanded by the situation.\" Just last week, Berlusconi had managed to ease pressure from his European partners with a series of promises, including an increase in the retirement age to 67 beginning in 2026 and a massive privatisation of state assets. The government has promised more detail on these measures by November 15 but a mooted proposal to ease labour legislation that would make it easier to fire employees on long-term contracts has already sparked trade union fury. The havoc on the markets prompted the European Central Bank to intervene by buying up Italian bonds, market sources said, on the same day that former Bank of Italy governor Mario Draghi takes over as the ECB\'s president. The ECB intervention initially slightly lowered the yield on 10-year government bonds but the effect was short-lived and the rate shot up to 6.33 percent later on Tuesday. That level is perilously close to its highest ever level of 6.397 percent reached in August when the government was forced to adopt emergency austerity measures and the ECB first started propping up Italian bonds. Italy\'s centre-right government has since come under ever greater pressure to implement reforms to cut debt and boost growth but has been held back by growing infighting within the ruling coalition. Italy has one of the lowest growth rates and highest debt levels in Europe, although its annual public deficit -- at 3.2 percent of output in the second quarter -- is lower than that of many of its neighbours. Analysts warned high bond yields risked making its debt unsustainable -- a dangerous spiral that could ultimately force Italy, the eurozone\'s third largest economy, to seek a bailout like Greece, Ireland and Portugal. \"If we reach 7.0 percent (on the bonds), we\'re one step from default,\" said Danilo Caselli, the director of the Milano Finanza-Dow Jones financial news agency. Nicola Rossi, an opposition senator and economist, said on Italian news channel SkyTG24: \"We all know that when our borrowing rate is close to seven percent our debt risks becoming unsustainable. \"The problem is that Italy is the weak link in the euro chain, so we are under particular scrutiny.\" he said. Rene Defossez, a bond strategist at French bank Natixis, however said investor concerns over Italy were exaggerated. \"Italy is not Greece. It\'s a major industrialised country with one of the highest primary (budget) surpluses in the eurozone,\" he said. But he also said the referendum announcement was \"very, very bad news since it delays a resolution of the crisis by several months.\" Business daily Il Sole 24 Ore said: \"The situation -- specifically our own -- has deteriorated due to hesitation. We have got ourselves in a mess on our own and only we can and must get out of it.\"