The lower house of Italy’s parliament voted in favour of austerity measures package demanded by the EU and designed to restore markets’ confidence in the country’s economy.
Silvio Berlusconi has promised to resign as prime minister after the vote is passed.
A technocrat government led by ex-EU commissioner Mario Monti seems likely.
The Senate on Friday backed the plan, which includes a rise in VAT and the pension age, a fuel price hike and also the sale of state assets.
Following that vote, shares in most European markets rose 2-3%, and the interest rate paid on Italy’s 10-year bonds dropped.
International Monetary Fund chief Christine Lagarde has welcomed the “significant progress” made in tackling the political crisis in Italy and Greece, where interim Prime Minister Lucas Papademos was sworn in at the head of a new cabinet on Friday.
“What we wanted at the IMF was political stability and a clear policy in both countries. I believe significant progress has been made,” Christine Lagarde said on Saturday during a visit to Tokyo.
Silvio Berlusconi, who survived a lost his parliamentary majority in a vote on Tuesday, promised to resign after the austerity measures are passed by both houses of parliament.
On Thursday, President Giorgio Napolitano – whose role is largely ceremonial – said he wished to “dispel any doubt or misunderstanding” on when the prime minister would fulfil his promise to resign.
Giorgio Napolitano could accept Silvio Berlusconi’s resignation as early as Saturday evening.
The president could then formally ask Mario Monti or another candidate to form a government of technocrats.
Italy’s leaders are desperate to signal that they can bring the country’s finances under control and they are moving fast.
Mario Monti, a well respected economist, is exactly the sort of man that the money markets would like to see take charge at this time of crisis.
The austerity package foresees 59.8 billion euros in savings from a mixture of spending cuts and tax rises, with the aim of balancing the budget by 2014.
* An increase in VAT, from 20% to 21%
* A freeze on public-sector salaries until 2014
* The retirement age for women in the private sector will gradually rise, from 60 in 2014 until it reaches 65 in 2026, the same age as for men
* Measures to fight tax evasion will be strengthened, including a limit of 2,500 euros on cash transactions
* There will be a special tax on the energy sector
On Wednesday, the interest rate on 10-year Italian government bonds touched 7%, the rate at which Greece, Ireland and Portugal were forced to seek bailouts from the EU.
An EU team has begun work in Rome, monitoring how Italy plans to cut its crushing debt burden, 120% of annual economic output (GDP).
The Italian economy has grown at an average of 0.75% a year over the past 15 years.