The Italian Senate gave initial approval today to radical budget cuts after a spike in borrowing rates and plunges on stock markets as Italy fights being dragged down by Europe's debt crisis.
"If we don't have a balanced budget then public debt -- a monster from our past -- would devour our future and the future of our children. The country is watching us," Economy Minister Giulio Tremonti said ahead of the Senate vote.
He also warned other European governments on the fallout of the crisis.
"There should be no illusions about who will be saved. Like on the Titanic, the first class passengers won't be able to save themselves," he said.
The vote in the Senate, where the government holds a comfortable majority, was passed by 161 votes in favour to 135 against with three abstentions.
The measures are now set to go before the lower house of parliament on Friday for expected final approval, even though the main opposition Democratic Party has said it will vote against and has demanded new elections.
Italy has one of the highest debt levels in the world and one of the lowest growth rates in Europe and reports of infighting between Prime Minister Silvio Berlusconi and Tremonti have further spooked investors in recent days.
Italy also on Thursday carried out a bond auction which was successful but saw the rate on 15-year bonds rise to 5.90 percent -- the highest since the introduction of the euro, indicating investor unease following market turmoil.
The rate on five-year bonds was at its highest level since June 2008.
Milan economics professor Guido Tabellini said the rise in Italy's cost of borrowing rates on financial markets in recent days could spell danger.
"Another couple of weeks like this and Italy is out of the market," he said.
Italy's four-year crash austerity plan, which includes a freeze on public sector salaries and a cut in regional subsidies, has been raised to around 47 billion euros ($67 billion) from 40 billion euros after investor pressure.
Tremonti also proposed introducing a constitutional provision to force Italian governments to keep balanced budgets -- a measure already in force in Germany that President Nicolas Sarkozy is also trying to enact in France.
Business daily Il Sole 24 Ore said that "the nightmare of one of Europe's founding states defaulting... has set off a strong and targeted reaction" from Italy's parliament, which is approving the austerity budget in record time.
But opposition leaders say Berlusconi, who has stayed away from the public eye since the stock market began plunging on Friday, has lost all credibility and should resign following the adoption of the austerity measures.
The budget plan is aimed at slashing Italy's budget deficit down to 0.2 percent of gross domestic product by 2014 from 4.6 percent last year.
It also includes plans for a round of privatisations from 2013, new charges for health services and a sped-up partial reform of pensions.
The government is also reining in tax exemptions to raise revenues.
The Milan stock exchange fell sharply after the bond auction but recovered slightly following the Senate's approval of the budget cuts. The FTSE Mib index of leading shares was down 0.78 percent at 18,694.68 points.
European leaders are facing demands for rapid action to fight a debt crisis that has pushed up market volatility, but diplomats say there are still too many divisions over a key issue -- agreeing a second rescue package for Greece.
"The sovereign debt crisis may have originated from Greece, but it is now spreading its tentacles throughout the western world," Kathleen Brooks, research director at online trading company Forex.com, told AFP.
"Huge debt-to-GDP ratios will no longer be tolerated, even in large economies like Italy," she said.
"Rising bond yields are the markets' way of telling governments to get their fiscal houses in order," she added.