The Italian senate has voted to adopt a package of austerity measures that analysts hope will keep the eurozone’s third largest economy from defaulting on loans or needing a bailout.
The move came under pressure from European Union leaders, with the austerity package expected to get final approval from the lower house at the weekend.
The move also makes way for Prime Minister Silvio Berlusconi’s eminent resignation.
Berlusconi promised to resign after austerity measures were passed after losing his parliamentary majority in a humiliating vote on Tuesday.
Mario Monti, widely described as a ‘technocrat’ businessman and former EU Commissioner, is being debated to take over leadership of the Italian government.
The senate in Italy voted in favour of the austerity package by 156 to 12. The lower house, called the chamber of deputies, is holding a special session at the weekend, where the measure is expected to pass.
The measures come as Italy has just raised over 5 billion euros (£4.3 billion) from the sale of government bonds. This means good news in the short term, but a costly 6.087% interest rate raises questions about the sustainability of the borrowing.
President Giorgio Napolitano, who holds a largely ceremonial political office in Italy, said on Thursday that he wants no “doubt or misunderstanding” about when the prime minister would go ahead with his promise to resign.
The leaders of Italy, desperate to show the world that they can get the crisis under control, are moving fast with decisive action.
The selection of Mario Monti, a well-respected economist, would bring further confidence from the money markets if he were to take charge during the crisis.
The austerity package proposes 59.8 billion euros in savings by cutting spending and raising taxes. The aim is to balance the budget by 2014.
The measures include an increase in VAT, from 20 to 21 percent, and a freeze on salaries in the public sector until 2014.
Additionally, the retirement age for women workers is set to rise gradually to cut costs on pension spending, making women retire at 60 in 2014 and to finally match up with the retirement age of men at 65 by 2026.
There are also proposals to tighten the policies on tax evasion, which includes a limit of 2,500 euros on all cash transactions.
The green party of Italy is also celebrating a victory with the austerity package, as a special tax is proposed for the energy sector.