Italy speeds up austerity to calm markets

"We believe it is opportune to accelerate the measures... to reach a budget balance early -- in 2013 instead of 2014," Berlusconi said at a hastily convened news conference in Rome alongside Economy Minister Giulio Tremonti.

"We are responding to the demands of markets that are governed by no one... and operate independently from economic reality," he said, adding: "We have to recognise that the world has entered a global financial crisis."

Berlusconi's coalition partner Umberto Bossi, a government minister, said the sped-up austerity package was part of a deal under which the European Central Bank (ECB) would start buying up Italian bonds from Monday.

"Everyone is afraid our bonds will turn into scrap paper but by returning to budget balance one year early, the ECB has guaranteed that from Monday it will buy our bonds," said Bossi, leader of the powerful Northern League Party.

"For us it's a solution, a guarantee," Bossi told reporters. "We absolutely need bonds because if we can't sell them we won't be able to pay pensions or healthcare so this is obligatory for us," he added.

Berlusconi said lawmakers would be called back early from summer recess to start working "immediately" on measures including a constitutional amendment that would force Italian governments to keep balanced budgets.

The Italian parliament said the amendment would be discussed in committee next Thursday. The change -- similar to one in force in Germany -- was announced by Berlusconi after emergency talks on the economy on Thursday.

"International speculators are paying particular attention to us and we have to put a stop to it," he said on Friday.

Economy Minister Giulio Tremonti meanwhile said the government would also present some major labour market reforms to trade unions and big business.

"The labour market is fundamental for development and investments," he said, adding that there would be a crackdown on a variety of tax exemptions.

But Italy's main centre-left opposition Democratic Party warned that speeding up austerity cuts was "irresponsible." Party leader Pier Luigi Bersani said it would be "a grave social and economic blow for the country."

The leftist opposition says the measures impact Italy's poorest hardest.

Italy has been battered on the stock and bond markets in recent weeks by investors concerned about its high public debt, anaemic economic growth, as well as signs of tensions within Berlusconi's centre-right coalition.

Italian shares plunged 13.12 percent this past week, although market rumours that the ECB was intervening to support the highly vulnerable markets for Italian and Spanish bonds helped stem the slide on Friday.

Italy's parliament last month adopted a four-year 48-billion-euro ($68-billion) austerity budget aimed at cutting the public deficit from 4.6 percent of output last year to just 0.2 percent by 2014.

The plan, which included deep cuts to regional subsidies, family tax benefits and top-tier pensions, was heavily criticised by several commentators for delaying by far the most painful cuts until 2013 and 2014.

The mandate of Berlusconi's centre-right government runs out in 2013.

The prime minister's motorcade was met by around 100 protesters outside government offices in central Rome as he arrived for the news conference.

"Clown!" one man shouted. Another said: "You are the ruin of Italy, go home!"

Berlusconi also told reporters he had agreed with French President Nicolas Sarkozy on holding an emergency meeting of G7 finance ministers of leading world economies in a few days to discuss the debt crisis ahead of a possible G8 summit.

France holds the presidency of the G7, G8 and G20 economic powers.

A spokesman for Berlusconi, Paolo Bonaiuti, later said that the prime minister's comments were part of an "ongoing reflection" and did not mean that "a decision has been taken" on the international meeting.