PARIS (AFP) - Tensions eased sharply on European bond markets on Monday, with rates falling on Italian 10-year debt after the new government in Rome announced tough budget measures, as well as in Spain and France. In mid-morning trading, the yield or interest rate indicated on 10-year Italian bonds stood at 6.366 percent, down from 6.661 percent on Friday. A week ago Italy made a new issue which went badly with the 10-year yield shooting above 7.0 percent, and the yield curve inverted signalling strong sentiment that the country could default in the near future. The easing of tension on the secondary market on Monday sent a signal that this outlook has receded in the light of the governments latest action, the third package in recent months. Italys new Prime Minister Mario Monti was to explain details of the latest austerity programme of taxes and pension reforms later in the day. The cabinet gave its go-ahead to the crisis-busting plan on Sunday estimating that it would save 20 billion euros ($27 billion). The 10-year rate for Spanish bonds also fell, to 5.418 percent against 5.626 percent on Friday. In France, the 10-year rate dropped to 3.170 percent from 3.253 percent. The falls came at the start of a week seen as as critical for the eurozone. Tensions on the eurozone bond market had already eased at the end of last week on rising sentiment that Germany and France are coming close to a new strategy for a solution to the eurozone debt crisis. This was partly because the European Central Bank hinted that if governments provided cast-iron guarantees that they will exercise budget discipline, then the central bank might have extra room for policy manoeuvre. Germany and France, whose leaders meet in Paris on Monday, have outlined plans for deeper fiscal integration in the 17-member eurozone, which would include more space for intervention in weaker economies. Angela Merkel and Nicolas Sarkozy have vowed to propose EU treaty changes to create what Merkel has dubbed a European fiscal union with strict rules and Sarkozy calls true economic government. EU leaders will meet for a summit in Brussels on Friday. The news from Italy allowed the bond market to start the week on a positive note, driving down bond yields, said an analyst at Credit Agricole CIB. Expectations are growing for a 'grand plan at the EU summit of December 9, said a note from Credit Agricole. Today French President Sarkozy and German Chancellor Merkel meet in Paris with the aim of offering joint proposals for an economic framework and fiscal strengthening, said the Credit Agricole CIB note. A note from Aurel BGC said that investors were looking for something essentially simple: a commitment by the European Central Bank to provide liquidity to the bond market.