An emergency Italian cabinet meeting called to accelerate budget reforms and calm market turmoil ended late on Wednesday with yet more bickering among coalition partners and little progress on reforms needed to strengthen the economy.

The meeting left Prime Minister Silvio Berlusconi with nothing concrete to take to the G20 summit in France on Thursday and still under strong domestic pressure to hand power to an emergency government of national unity.

A statement from Berlusconi's office gave no detail of any measures decided at the meeting, which was intended to ease market pressure on Italian bonds and shares.

The cabinet failed to approve an emergency decree as Berlusconi had hoped and decided instead to add a series of measures -- yet to be drawn up in detail -- to the budget bill currently before the Senate.

Berlusconi was expected to face intense pressure from his G20 partners in Cannes to produce a clear set of concrete reforms to stop financial markets from targeting Italian bonds, the latest victims of the euro zone financial crisis.

Roberto Calderoli, a minister from the increasingly restive Northern League party, said after the cabinet meeting he was totally disappointed by the failure to adopt an emergency decree.

Susanna Camusso, the head of Italy's largest trade union, the CGIL, said the outcome meant Italy must attend the G20 without a credible leader and without the decisions which have been promised but not taken.

The government statement said the cabinet had examined a set of urgent measures to support the Italian economy and had approved an amendment to the budget in line with commitments Berlusconi made to the European Union in a letter last week.

It offered no details, and government sources said technical experts would be working to draw up the amendment on Thursday.

The measures will include tax breaks for infrastructure companies, a reduction in red tape for business and steps to promote apprenticeships to reduce youth unemployment, the sources said. There was still no agreement on more contentious issues such as labour market reform or a wealth tax.

Berlusconi held four hours of meetings with senior officials and ministers in the morning ahead of the cabinet meeting.

Yields on 10-year Italian BTP bonds fell slightly on Wednesday from the highs reached on Tuesday but were still at more than 6.2 percent, even with support from the European Central Bank's bond-buying operation.

Greece's surprise decision to call a referendum on austerity measures demanded by the European Union has worsened fears about the stability of other heavily indebted economies like Italy, the euro zone's third largest economy.

As market turbulence spread, threatening a wider euro zone meltdown, Berlusconi has come under fire from all sides over his handling of the crisis and his failure to pass decisive reforms.

It's useless to make sacrifices to get out of the crisis if Silvio Berlusconi remains at the head of the government, said Pierferdinando Casini, head of the centrist UDC party.


In a highly unusual statement late on Tuesday, President Giorgio Napolitano called on Berlusconi to pass long-promised measures without delay and indicated he was looking at how much support there was for reform outside the ranks of the centre-right government.

Napolitano cannot dismiss Berlusconi as long as he has a majority. But if divisions in the coalition deepen and provoke a parliamentary crisis in which the government loses a confidence vote, he would have the power to name a new administration.

That was a warning, said Anna Chimenti, a professor of constitutional law at the University of Foggia. Until there is a crisis, Napolitano is like a referee who blows the whistle when rules are not respected. He's blowing the whistle now.

Andrea Ronchi, a PDL deputy who had lunch with Berlusconi on Wednesday, told reporters the 75-year-old prime minister had shown no signs of wanting to stand down.

But there have been growing signs of dissent on his own back benches. Roberto Antonione, a member of Berlusconi's original Forza Italia party, became the latest deputy to quit the ruling PDL and call on the premier to go.

The opposition Democratic Party said it would try to force a decision in parliament next week if Berlusconi did not resign beforehand. We are ready to assume our responsibilities and to support a new government with an agenda for reform and cutting the debt, senior party official Enrico Letta told Reuters.


Italy is too big to bail out if its borrowing costs get out of control. It has sluggish growth, a divided and ineffective government and a public debt equivalent to 120 percent of gross domestic product -- a toxic combination that poses a growing threat to the survival of the euro.

Berlusconi has promised European Union partners reforms such as easier rules on redundancies, including for civil servants, and a rise in the pension age, but the measures would not take effect for months.

The new Governor of the Bank of Italy, Ignazio Visco, added his voice to the calls for reform, saying the government must rapidly honour its pledges to the EU

Underlining the problems facing the government, a purchasing managers indicator on Wednesday hit a 28-month low as Italian manufacturing output fell sharply, highlighting a growing risk of recession in coming months.

A series of austerity packages passed during the summer aimed to bring Italy's budget into balance by 2013, but the government has been widely criticised for the slow and erratic way it has gone about agreeing and implementing the reforms.

The scandals involving Berlusconi, who faces trial on a variety of charges ranging from tax fraud to having sex with an under-aged prostitute, have also raised questions about his focus on the complicated reform process.

(Additional reporting by James Mackenzie, Paolo Biondi, Gavin Jones, Catherine Hornby, Francesca Piscioneri and Giuseppe Fonte; editing by Barry Moody and Tim Pearce)