The Italian Senate has approved a crucial €70bn (£62bn) austerity package aimed at convincing investors that the eurozone's third-largest economy will not be swept into the debt crisis.
The measures were passed 161-135 in a vote of confidence called by Premier Silvio Berlusconi's government.
Italy fast-tracked approval of the package, which was due for a final vote in the lower house of parliament today, and increased its size after markets plummeted this week on worries over the country's financial stability.
The extent of investors' fears was apparent in a debt auction yesterday, when Italy saw its borrowing rates hit a record high in a sale of €4.96bn (£4.36bn) in five-to-15 year bonds.
Italy is under pressure to show markets it can bring its accounts in order and promote growth, or risk being dragged into the debt crisis that has hit Greece, Ireland and Portugal.
Finance Minister Giulio Tremonti told the senate that the austerity package, which was strengthened by reducing tax breaks in 2013 and 2014, seeks to balance the budget by 2014 and contains 16 measures to spur growth.
"Without the balanced budget, the monster of debt, which comes from the past, would devour our future and that of our children," he said.
While Italy's debt is among the highest in the eurozone at nearly 120% of GDP, poor growth is viewed as the overriding issue.
Tremonti said that credits for research, reforms to civil justice and measures to promote tourism and help young entrepreneurs would bolster economic growth.
Government members, meanwhile, dismissed persistent rumours that Tremonti would leave his post over tensions with Berlusconi.
The premier was last week quoted by La Repubblica as saying Tremonti was "not a team player".
Meanwhile, the sharp divisions between Ireland's bailout partners were brought into the open yesterday when the IMF's Ajai Chopra publically criticised Europe's response to the crisis.
Flanked by his European counterparts at a press conference in the European Commission's Dublin headquarters, Mr Chopra said Europe was creating a "contagion'' effect which was unhelpful for Ireland.
"The problems that Ireland faces are not just an Irish problem," said Mr Chopra. "They're a shared European problem.
"What we need and what's lacking so far is a European solution to a European problem."