Italy would have collapsed without the government's tough new austerity package, Prime Minister Mario Monti said on Monday, saying his country ran the risk of a Greek-style emergency.
Monti spoke to foreign journalists about the 30 billion euro package of tax rises, pension reforms and growth-boosting incentives before presenting it to parliament later on Monday.
Monti's action, agreed by the cabinet on Sunday, kicked off one of the most crucial weeks since the launch of the euro more than a decade ago.
The package, dubbed a Save Italy decree by Monti, aims to raise more than 10 billion euros ($13.4 billion) from a property tax, impose a new levy on luxury items like yachts, raise value added tax, crack down on tax evasion and increase the pension age.
Without this package, we think that Italy would have collapsed, that Italy would go into a situation similar to that of Greece, Monti told the news conference.
Italy, the euro zone's third-largest economy, has been at the centre of the crisis since mid-year, when its borrowing costs began to approach the levels that forced Ireland, Greece and Portugal to seek an international bailout.
Markets, primed ahead of a vital meeting of EU leaders in Brussels on Thursday and Friday, welcomed the measures, which analysts said should be enough to persuade the European Central Bank to continue hold down borrowing costs by buying Italian bonds on the market.
Yields on 10-year Italian bonds dropped to 6.2 percent, around a full percentage point lower than last week, while the risk premium over benchmark German Bunds narrowed to 408 basis points, levels last seen in early November.
The first comment from a European leader was also positive. Dutch Prime Minister Mark Rutte, who met Monti in Rome on Monday morning, said he was very impressed by the package, which was also welcomed by the European Commission.
MEASURES IN EFFECT IMMEDIATELY
Most Italian newspapers praised Monti for biting the bullet in a difficult moment and for distributing the pain.
There are times when you have to displease everyone and certainly, this, for Italy is one of those moments, the Turin daily La Stampa said.
Packed into a single emergency decree, the measures take effect immediately, before formal parliamentary approval, but Monti will have to secure the backing of legislators within 60 days for them to remain in force.
Monti, appointed at the head of a technocrat government to replace former Prime Minister Silvio Berlusconi last month, had been under growing pressure to come up with concrete measures to address fears about Italy's towering debt mountain.
He has held to Berlusconi's pledge of a balanced budget by 2013, despite growing signs that Italy is heading into a recession that will make it extremely difficult to make inroads into a public debt of 120 percent of gross domestic product.
Deputy Economy Minister Vittorio Grilli said the measures outlined on Sunday would allow the goal to be met despite a forecast that GDP would contract by 0.4-0.5 percent in 2012.
The package is divided into 20 billion euros of budget tightening and an additional 10 billion euros that will be pumped back into the economy in the form of measures to help companies and boost growth.
Caught between the competing needs of boosting growth and ensuring that cuts do not further depress a fragile economy, Monti's government risks growing opposition after an initial honeymoon period granted by a public fed up with the scandals of the Berlusconi era.
Unions criticized the package and in an early sign of possible opposition to the Monti government, FIM-CISL, a union representing metal workers, said it would call a two-hour strike on Wednesday.
Yet again, the sacrifices demanded fall mainly on salaried workers and pensioners and on the weaker sections of society, the union said in a statement. ($1 = 0.7446 euros)
(Additional reporting by Philip Pullella and Alberto Sisto, Writing by James Mackenzie; Editing by Barry Moody and Alessandra Rizzo.)