The Italian Senate approved a crucial €70 billion ($99 billion) austerity package aimed at convincing investors that the eurozone's third-largest economy won't be swept into the debt crisis.
The government had fast-tracked approval of the package and increased its size after markets plummeted this week on worries over the country's financial stability.
The measures were passed 161-135 in a vote of confidence called by Premier Silvio Berlusconi's government. They are due for a final vote in the lower house of parliament on Friday.
But Finance Minister Giulio Tremonti warned that country-specific measures were not enough — even for larger, stable countries — and that Europe needed a stronger regional plan if it was to stamp out the debt turmoil for good.
"Like on the Titanic, not even first-class passengers will be saved," Tremonti said.
The fate of the Italian economy is crucial to Europe's hopes of defeating the debt crisis, because it is many times larger than Greece's or Portugal's and would be far too expensive to rescue.
The extent of investors' fears was apparent in a debt auction on Thursday, when Italy saw its borrowing rates hit a record high in a sale of €4.96 billion ($7 billion) in 5- to 15-year bonds.
Yields on the 5-year bonds reached 4.93 percent, the highest for that debt since the launch of the euro and up from 3.9 percent at the last such auction in June.
Italy is under pressure to show markets it can bring its accounts in order and promote growth, or risk being dragged into the debt crisis that has hit Greece, Ireland and Portugal.
Tremonti told the Senate that the austerity package, which was strengthened by reducing tax breaks in 2013 and 2014, seeks to balance the budget by 2014 and contains 16 measures to spur growth.
"Without the balanced budget, the monster of debt, which comes from the past, would devour our future and that of our children," he said.
But while Italy's debt is among the highest in the eurozone at nearly 120 percent of GDP, poor growth is viewed by many as the overriding issue.
Tremonti said that credits for research, reforms to civil justice and measures to promote tourism and help young entrepreneurs would bolster economic growth.
The package also includes cuts to political spending, although analysts have criticized the measures for being backloaded to the next legislature, after Berlusconi's term expires. Italy will also look into privatizing state-owned companies, like the state railway or postal services, once the crisis eases.
"The measures were necessary. What is still missing are cutting political costs and measures to stimulate growth," said Bocconi University economist Franco Bruni, adding that the political cuts are insufficient and the growth measures announced by Tremonti still need to be quantified.
The political cuts should include such things as the long-delayed step of abolishing provincial administrations in order to help offset tax increases, he said.
"They need to cut more spending, and raise the taxes less," Bruni said.
Government members, meanwhile, dismissed persistent rumors that Tremonti would leave his post over tensions with Berlusconi.
"I don't think that Tremonti will quit. I believe at this moment it is advisable that he remains at his post," Claudio Scajola, a member of Berlusconi's coalition, said.
Berlusconi last week was quoted by La Repubblica as saying Tremonti was "not a team player." The finance minister has been touched by a scandal involving a former aide and was forced to apologize to another minister last week after cameras caught Tremonti calling him "an idiot."