Italian prime minister Silvio Berlusconi called an emergency cabinet meeting today to accelerate budget reforms in an attempt to calm market turmoil that threatens to tip Italy's economy into full-blown crisis.
Mr Berlusconi is under growing pressure to step down and hand power to an emergency government of national unity. He held four hours of meetings with senior officials and ministers in the morning ahead of the cabinet meeting at 7pm.
The cabinet will consider various legislative options to fast-track reforms, including a decree and amendments to budget legislation already in the Senate, infrastructure minister Altero Matteoli said.
Mr Berlusconi wants something concrete to show when he goes to the G20 meeting of economic powers in France tomorrow. Italian bonds have been targeted on financial markets as the euro zone financial crisis spreads out from Greece.
Yields on 10-year Italian BTP bonds fell slightly today from the highs reached yesterday but were still at more than 6.2 per cent, even with support from the European Central Bank's bond-buying operation.
Greece's surprise decision to call a referendum on austerity measures demanded by the European Union has worsened fears about the stability of other heavily indebted economies like Italy, the euro zone's third largest economy.
As market turbulence spread, threatening a wider euro zone meltdown, the scandal-plagued Mr Berlusconi has come under fire from all sides over his handling of the crisis and his failure to pass decisive reforms.
Italian president Giorgio Napolitano, in a highly unusual statement late last night, called on Mr Berlusconi to pass long-promised measures without delay. Mr Napolitano indicated he was looking at how much support there was for reform outside the ranks of the centre-right government.
Mr Napolitano cannot dismiss Mr Berlusconi as long as he has a majority. But if divisions in the coalition deepen and provoke a parliamentary crisis in which the government lose a confidence vote, he would have the power to name a new administration.
Andrea Ronchi, a PDL deputy who had lunch with Mr Berlusconi today, told reporters the 75-year-old prime minister had shown no signs of wanting to stand down.
But there have been growing signs of dissent on his own back benches. Roberto Antonione, a member of Mr Berlusconi's original Forza Italia party, became the latest deputy to quit the ruling PDL and call on the premier to go.
Mr Berlusconi has promised European Union partners reforms such as easier rules on redundancies, including for civil servants, and an increase in the pension age, but the measures would not take effect for months.
Officials are trying to pack new measures, including cuts to some tax breaks and more labour market liberalisation, into the budget bill currently in the Senate to enable the government to present an approved package of legislation as soon as possible.
Other potential measures, including a wealth tax and a possible amnesty on tax evasion, have caused deep disagreement between ministers including Mr Berlusconi and economy minister Giulio Tremonti.
A series of austerity packages passed during the summer aimed to bring Italy's budget into balance by 2013, but the government has been widely criticised for the slow and erratic way it has gone about agreeing and implementing the reforms.
The scandals involving Mr Berlusconi, who faces trial on a variety of charges ranging from tax fraud to having sex with an under-aged prostitute, have also raised questions about his focus on the complicated reform process.
Italy is too big to bail out if its borrowing costs get out of control. It has sluggish growth, a divided and ineffective government and a public debt equivalent to 120 per cent of gross domestic product - a toxic combination that poses a growing threat to the survival of the euro.
Italy's top financial officials met to discuss the impact of the crisis on the banking sector.
The meeting of the Financial Stability Safeguard Committee included Tremonti, Bank of Italy Governor Ignazio Visco, Treasury head Vittorio Grilli and the heads of insurance regulator ISVAP and markets watchdog Consob.
The risk premium paid on Italian 10-year bonds compared with their safer German equivalent was at 439 basis points, a slightly narrower spread than the 455 points yesterday.
If bond yields stay at their current levels, Italy faces having to pay billions of euros more in interest payments over coming years.
Underlining the problems facing the government, a purchasing managers indicator on Wednesday hit a 28-month low as Italian manufacturing output fell sharply, highlighting a growing risk of recession in coming months.
Reuters