Italy's cabinet on Sunday adopted a package of tax hikes, budget cuts and pension reforms worth 20 billion euros ($27 billion) in a rush to avoid a bankruptcy that threatens to bring down the eurozone.

"This is a decree to save Italy," Prime Minister Mario Monti said at a press conference after the cabinet meeting, adding: "This is a moment in which Italy risks being responsible for helping to drag down the economy of Europe."

Italy will "put its deficit and debt under strong control" so that the country is "not seen as a suspicious flash point by Europe," he said.

He also warned that Italians had to make "sacrifices" and said he was renouncing his own salary as prime minister in a gesture of solidarity.

The three-year package includes a controversial pension reform that will increase the minimum pension age for women to 62 starting next year and fall into line with men by 2018, by which time both will retire at 66.

The number of years that men have to pay contributions to receive their full pensions will also be increased from the current level of 40 to 42.

Welfare Minister Elsa Fornero, whose proposals have already been slammed by Italy's main trade unions, broke down in tears as she outlined the changes.

The package also increases taxes on housing and luxury items and raises value-added tax -- which has already been raised by one percentage point this year -- by two percentage points to 23 percent from the second quarter of 2012.

Final approval of the reforms in parliament is expected before Christmas.

The crucial government meeting had been scheduled for Monday but it was brought forward by Monti in a bid to finalise the budget reforms before the markets open in a crucial week for the future of the euro.

A former top European Union commissioner who came to power just three weeks ago after the flamboyant Silvio Berlusconi was ousted by a wave of panic on financial markets, Monti said Italy was at a dramatic crossroads.

"We're faced with an alternative between the current situation, with the required sacrifices, or an insolvent state, and a euro destroyed perhaps by Italy's infamy," he said.

Italy is under intense pressure from its eurozone neighbours and international investors to introduce draconian measures to rein in its public debt ahead of a crucial European Union summit on Thursday and Friday.

Rome has already adopted two austerity packages this year but the European Commission indicated that the eurozone's third largest economy would fail to reach its target of balancing the budget by 2013 without more belt-tightening.

Italian unions voiced their opposition, even though a planned overhaul of labour laws to make it easier for companies to fire workers has been postponed to a future date.

Susanna Camusso, head of Italy's largest union, the CGIL, said the measures were aimed at "making money on the backs of poor people in our country."

"There is no equity" in the proposed package, she said, adding that all the main unions should team up to evaluate their response to the measures.

The populist Northern League, the only major party in parliament opposed to Monti's government, has said it wants a referendum on pension reforms.

"Italy has lost," party leader Umberto Bossi told a rally on Sunday.

Economists are worried that the toxic mix of high borrowing costs, massive debt and low growth could push Italy - the eurozone's third largest economy -- towards insolvency within months.

The government has denied persistent rumours that it is preparing to accept a credit line from the International Monetary Fund (IMF), following in the wake of bailouts for fellow eurozone members Greece, Ireland and Portugal.

But the IMF and the EU have been keeping Italy under special surveillance through teams of auditors to ensure it implements long-delayed reforms and a reduction in a debt mountain equivalent to 120 percent of output.

France and Germany say a debt blow-up in Italy could kill off the entire euro area and observers warn Italy is "too big to bail" in case of a default.

Angelino Alfano, the leader of Berlusconi's People of Freedom party, the biggest party in parliament, also put the situation in stark terms: "The choice is between a harsh plan today and the risk of bankruptcy tomorrow."

channelnewsasia.com