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Shares and bonds make up ground on frenetic day as hope grows for smooth introduction of austerity measures Italian shares and bonds made up ground on Tuesday as politicians of all stripes worked frantically to shore up confidence in their country and prevent it being sucked into the same maelstrom as Greece. The blue chip FTSE Mib index closed 1.2% up at 18,510.53 after a dizzying session that saw it dip 4.7% after the opening. Sentiment began to change with an auction of short-dated treasury bonds. Though the return demanded by investors soared, from just over 2.1% at the last such auction to almost 3.7%, the demand exceeded supply by more than half. That reflected a growing conviction that Silvio Berlusconi’s government could steer through a package of austerity measures swiftly, and without concessions. Parliamentary managers vowed the package, which aims to clip €40bn (£35.1bn) from the deficit, would be approved by the Senate on Thursday and in the lower house, the Chamber of Deputies, by Sunday. The finance minister, Giulio Tremonti, hastened back to Rome from a meeting of his EU counterparts in Brussels to cut a deal with the opposition on last-minute changes. One such involved limiting or scrapping an increase in the levy on treasury bonds that would have penalised smaller investors and curbed demand at a time when Italy’s debt managers sorely need buyers. By the afternoon, the spread on Italy’s benchmark 10-year bonds, relative to their German equivalents, was back below 3%, after touching almost 3.5%. That was nevertheless higher than Monday night’s close and still nearly a full percentage point above the level Barclays Capital estimated last month was the maximum sustainable in the long term. Tremonti’s austerity package only tackles one issue spooking markets – Italy’s giant public debt and a budget deficit he aims to close by the end of 2014. If anything, though, it could exacerbate another problem, which is Italy’s ultra-low growth – a persistent feature of its economy since 2001 when Berlusconi first returned to office. Some opposition politicians were advocating the formation of a cross-party “technical government” without Berlusconi once the austerity measures had been signed into law. The media tycoon also played a role in sparking the sell-off by openly decrying his finance minister in an interview published on Friday. Anna Finocchiaro, the upper house whip of Italy’s main opposition group, the Democratic Party, said: “Berlusconi is costing Italy too much.” Italy European debt crisis European banks FTSE Europe Silvio Berlusconi Stock markets Europe European monetary union Greece Barclays Banking John Hooper guardian.co.uk