|Prime Minister Mario Monti is trying to reverse a disastrous collapse of market confidence in Italy [Reuters]
Italy's cabinet adopted a package of tax hikes and pension reforms worth 24bn euros ($32 billion) in a rush to ease a crisis that is threatening the eurozone, government sources said.
The cabinet meeting had been scheduled for Monday but it was brought forward by Prime Minister Mario Monti in a bid to finalise the budget reforms before the markets open in a crucial week for the future of the euro.
A former top European Union commissioner who came to power just three weeks ago after the flamboyant Silvio Berlusconi was ousted by a wave of panic on financial markets, Monti said Italy was at a dramatic crossroads.
"We're faced with an alternative between the current situation, with the required sacrifices, or an insolvent state, and a euro destroyed perhaps by Italy's infamy," Monti said ahead of the cabinet meeting.
"The Italian situation is being followed in Washington, Beijing and Tokyo," the prime minister was quoted as saying during a round of consultations to shore up political and social support for the draconian measures.
Final approval of the reforms in parliament is expected before Christmas.
Italy is under intense pressure from its eurozone neighbours and international investors to introduce draconian measures to rein in its public debt ahead of a crucial European Union summit on Thursday and Friday.
Rome has already adopted two austerity packages this year but the European Commission indicated that the eurozone's third largest economy would fail to reach its target of balancing the budget by 2013 without more belt-tightening.
Italian media reported that the proposals include an increase in housing and income taxes as well as new tariffs on luxury goods and a reform of the pensions system aimed at increasing the pension age for men and women.
Italy's powerful trade unions immediately voiced opposition to the package.
Susanna Camusso, head of Italy's largest union, the CGIL, said the measures were aimed at "making money on the backs of poor people in our country".
"There is no equity" in the proposed package, she said, adding that all the main unions should team up to evaluate their response to the measures.
The populist Northern League, the only major party in parliament opposed to Monti's government, has said it wants a referendum on pension reforms.
"Italy has lost," party leader Umberto Bossi told a rally on Sunday.
Monti has emphasised the need for "sacrifices" but also says he will aim for "social equity" and wants to ensure the reforms help boost economic growth, including through possible infrastructure projects and lower taxes on labour.
Economists are worried that the toxic mix of high borrowing costs, massive debt and low growth could push Italy towards insolvency within months.
The government has denied persistent rumours that it is preparing to accept a credit line from the International Monetary Fund (IMF), following in the wake of bailouts for fellow eurozone members Greece, Ireland and Portugal.
But the IMF and the EU have been keeping Italy under special surveillance through teams of auditors to ensure it implements long-delayed reforms and a reduction in a debt mountain equivalent to 120 per cent of output.
France and Germany say a debt blow-up in Italy could kill off the entire euro area and observers warn Italy is "too big to bail" in case of a default.
Angelino Alfano, the leader of Berlusconi's People of Freedom party, the biggest party in parliament, also put the situation in stark terms: "The choice is between a harsh plan today and the risk of bankruptcy tomorrow."