The Italian Senate on Thursday approved a crucial euro70 billion ($99 billion) austerity package aimed at convincing investors that the eurozone's third-largest economy won't 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 is due for a final vote in the lower house of parliament on Friday, 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 on Thursday, when Italy saw its borrowing rates hit a record high in a sale of euro4.96 billion ($7 billion) in 5- 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 strenghened 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 percent of GDP, poor growth is viewed by many 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 rumors that Tremonti would leave his post over tensions with Berlusconi.
"I don't think that Tremonti will quit. I believe at this moment it is advisable that he remains at his post," Claudio Scajola, a member of Berlusconi's coalition, said.
Berlusconi last week was quoted by La Repubblica as saying Tremonti was "not a team player." The finance minister has been touched by a scandal involving a former aide and was forced to apologize to another minister last week after cameras caught Tremonti calling him "an idiot."