Italy's upper house of parliament has approved sharp budget cuts in a vote aimed at calming fears that Europe's third largest economy could be consumed by the continent's debt crisis.
The Senate voted 161 to 135 on Thursday in favor of the four-year austerity plan worth at least $67 billion. Parliament's lower house is expected to pass the measure on Friday.
The package, designed to balance the country's budget by 2014, calls for cuts in government subsidies to regions in the country, a freeze on public sector salaries and new healthcare charges.
Three European countries: Greece, Ireland and Portugal - have already been forced to secure international bailouts from their European neighbors and the International Monetary Fund, and Greece is already working on a second bailout. With a much bigger economy than those three countries, Italy is seeking to stave off its own financial meltdown.
But with the uncertainty of parliamentary debate, Italy has been forced to pay higher interest rates on bonds to finance its governmental operations.
The austerity measures are intended to cut Italy's debt, which is equivalent to 120 percent of the nation's output. Easing the debt burden makes it more likely that the loans will be repaid, so lenders will offer lower interest rates, cutting borrowing costs.
Earlier this week, the IMF called on Italy for "decisive implementation" to cut its public debt after investors continued to dump Italian bonds.
Global stock prices had fallen sharply earlier this week in part because investors grew more worried that the European debt crisis might hit Italy next. Investors apparently were shaken by political bickering in Italy's government over the austerity budget.
Italy's opposition parties, largely opposed to austerity measures, are calling for elections to be held after the cutbacks are approved. Many have also called for the resignation of Prime Minister Silvio Berlusconi, saying he is politically too weak to guide the nation through its debt crisis.
Mr. Berlusconi is in the midst of a trial in which he is accused of paying for sex with an underage teenage girl and then trying to cover it up. Last weekend, a Milan appellate court ordered his investment company to pay $801 million to a rival business venture after it bribed as judge to win approval of the takeover of a publishing company.
Some information for this report was provided by AFP and Reuters.