Silvio Berlusconi struggled to come to an agreement with his coalition partners on Tuesday over disputed structural reforms ahead of a key European summit, sparking talk that the government could fall.
The Italian premier faces intense pressure from European allies to prove Italy will not replace Greece as the overwhelming concern in the eurozone crisis, but despite assurances he can deliver the required measures by Wednesday, Berlusconi faces dissension in the ranks.
The embattled centre-right government still has some room for manoeuvre but risks falling, Infrastructure Minister Altero Matteoli said on Tuesday.
"We are in the processes of negotiating. I think there is this hypothesis (that the government could fall), but there is a margin for manoeuvre," he said.
As Italy scrambled to assure European allies it could shape up its economy, Berlusconi and top party members attempted to thrash out details of new measures with senior League members Roberto Calderoli and Roberto Maroni.
A key sticking point is a reform to pension schemes.
While Berlusconi's People of Freedom party is in favour of modifying the pension system, the League has threatened to pull out of the coalition and bring down the government if extensive changes are made.
On Sunday, Berlusconi promised Brussels he would extend the retirement age to 67 years, to bring Italy into line with other European countries.
But Northern League leader Umberto Bossi vociferously defends the current systems, which allow early starters to take their pension from 60-years-old onwards, while others can retire from 65.
The issue is considered non-negotiable by voters in his Northern Italy stronghold and Bossi has described the situation as "very dangerous."
"It's not possible to move the pensionable-age to 67 to please the Germans. We cannot do it, people would kill us," he said.
Matteoli said that, for now, both parties "are in agreement that it would be better not to cut pensions but in that case they would need to find another solution, which is not easy."
No decisions came from an emergency cabinet meeting Monday evening and Berlusconi has little time to resolve the situation.
Saddled with a 1.9 trillion euro debt mountain, 120 percent of its GDP, EU leaders demanded action from Berlusconi before the Wednesday 1600 GMT summit.
Widespread accusations that German Chancellor Angela Merkel and French President Nicolas Sarkozy's ridiculed Italy during a press conference in Brussels on Sunday only added to the tension.
The pair had appeared at pains to offer a clear answer when asked if Berlusconi had their confidence to fight Italy's giant debt, and photographs of them laughing were splashed over newspapers who accused them of "sarcasm".
President Giorgio Napolitano, who is widely respected by ordinary Italians, slammed the German chancellor and French president for "inappropriate and unpleasant public expressions."
"Today more than ever, we are all on the same boat on a raging sea. Each country has to do its duty and we must guarantee indispensable mutual solidarity," he said in a statement on Tuesday.
Doubts over Italy's ability to weather the eco-crisis come despite budget cuts adopted by the Italian parliament in July and September aimed to bring the country back into fiscal balance from 2013 and reduce its debt.
European officials believe Italy has slipped back on its commitments since August, when the European Central Bank moved to support Rome by buying up its debt on the secondary markets.
Italian bond yields are still hovering near the six-percent level that triggered large-scale intervention by the ECB, but Berlusconi has insisted he does not need lessons on keeping the country afloat from his European partners.