Italian senators gave their approval on Thursday to austerity tax increases and pension reforms in a bid to avoid bankruptcy for the eurozone's third-biggest economy as a recession looms.
Prime Minister Mario Monti's government had called a confidence vote on the package in the Senate to ensure that the unpopular measures went through before Christmas to shore up sagging confidence in Italy on the financial markets.
Monti, a former European commissioner who only came to power last month, told senators the measures were "of extreme urgency" and would allow Italy "to confront the very grave European crisis with its head held high."
He said the situation remained "critical" and stressed the importance of measures to boost growth, a day after data showed the economy contracted by 0.2 percent in the third quarter, putting Italy on the brink of recession.
"There is still enormous work to be done to free the Italian economy from the brakes that have held back growth for too long," Monti said.
The former economics professor also urged all European Union members to "pursue the objective of stable growth, employment and cohesion.
"There is no growth without financial discipline, there is no stability with accounts that are not in order but that is not enough," he said.
Monti's programme, which includes savings of around 20 billion euros ($26 billion), has angered trade unions but protests have been half-hearted and many Italians are resigned to the need for sacrifices to avoid a catastrophe.
The package was approved with 257 votes to 41, mainly from the populist Northern League and Italy of Values parties that constitute the only real opposition to Monti's technocratic government.
Monti says that cutbacks are inevitable if Italy, which has alarmed markets with a mountain of debt equivalent to 120 percent of gross domestic product (GDP), wants to avoid the same fate of bailed-out Greece.
The austerity plan will be Italy's third this year after two earlier packages passed by Monti's predecessor Silvio Berlusconi with total savings of 60 billion euros aimed ultimately at balancing the budget by 2013.
Members of the lower house of parliament last week managed to bring in some changes to Monti's plan, easing the tax on principal residences and increasing the baseline for pensions that will temporarily not be indexed to inflation.
As well as austerity, Monti has stressed the need for "equity" and "growth" but his critics say the current plan has little of either although it includes some 10 billion euros aimed at boosting Italy's contracting economy.
The government says this is only its first step on the road to reform.
Next year it is planning to tackle long-delayed structural reforms such as overhauling the labour market, under the watchful eye of the International Monetary Fund.
The government wants to make hiring and firing easier but the plan has raised hackles among centre-left parties and trade unions who warn easier dismissals could push up unemployment at a time of recession.
Welfare Minister Elsa Fornero has warned there should be no untouchable "totems" on labour reform but a storm of protest forced her to step back on Wednesday, saying that the reform was not in fact a priority.
Monti is also aiming to liberalise Italy's notoriously powerful professional lobbies but he was forced to postpone a first minor attempt at reforming the taxi and pharmaceuticals businesses in the current plan.