Italy was near the finishing line in racing to slash benefits and pensions with a 48-billion-euro ($68-billion) austerity budget on Friday to firefight the eurozone debt crisis lapping at its shores.
Final approval for the wide-ranging budget cuts in parliament is widely expected later on Friday, as the EU publishes results from stress tests on 91 European banks under the close eye of investors looking for signs of weakness.
Financial markets have been highly volatile in recent days as a credibility crisis over heavily-indebted European countries' ability to repay loans has threatened to spread to Italy -- the eurozone's third-biggest economy.
The Italian parliament has raced to adopt its austerity measures in record time after a draft was put forward by the government just two weeks ago.
"When they find themselves with their backs to the wall, Italy and its political system know how to react and know what has to be done. This budget is an important signal for the markets," business daily Il Sole 24 Ore said.
"But now we need a second phase. A phase of growth. Because without growth there is no financial rigour that will be able to shelter Italy for long from the uncertainty and appetite of the markets," the newspaper said.
Italy is the world's eighth biggest economy but is laden down by an extremely high public debt level, even though its budget deficit has remained relatively moderate compared to deficits in some of its European neighbours.
The austerity budget -- which will cut family tax benefits, reduce top-tier pensions, slash regional subsidies and launch privatisations -- aims to reduce the deficit to 0.2 percent of output by 2014 from 4.6 percent last year.
Analysts have warned that Italy's virtually stagnant economy and tensions within Prime Minister Silvio Berlusconi's ruling coalition are potential risks but have dismissed the prospect of Italy having to resort to a bailout.
The uncertainty has hurt Italian stocks in recent days and long-term borrowing rates -- a measure of risk -- flew to record highs on Thursday.
The Milan stock exchange was down slightly at minus 0.08 percent in morning trading, mirroring slips in other European stock markets at the opening.
Parliament's vote on the austerity measures is expected in the afternoon.
Trade unions have said they are opposed and the largest union, CGIL, held a small symbolic rally outside parliament ahead of the vote.
"This budget hurts the most vulnerable," read one placard.
"Go away Berlusconi! It's time for change!" said another.
Emma Marcegaglia, head of the employers' federation Confindustria, has also criticised the plan saying it is "based in substance on a tax increase" and fails to reduce bureaucratic costs as promised by the government.
Leaders of the 17-nation euro area meanwhile are scrambling to resolve divisions over a new bailout for Greece and lay the ground work for a debt crisis summit that could take place as soon as Monday, officials said.
Germany, Finland and the Netherlands argued that private banks should share the pain of aiding Greece even at the cost of allowing it to default.
The European Central Bank and several other eurozone nations object strongly to letting Athens default given the repercussions that could have.
Problems in the eurozone have been causing "a good bit of anxiety in markets," US Federal Reserve Chairman Ben Bernanke said earlier, amid sensitive debt talks in Washington that also have ratings agencies and investors on edge.