Adoption of the plan, which includes deep cuts to regional subsidies, family tax benefits and top-tier pensions, came just ahead of hotly awaited results of stress tests which were failed by eight of the 91 European banks being tested. All five top Italian banks passed the tests with "an ample margin," the central bank said, adding the review showed that Italian banks were prepared even if there were to be a "sharp deterioration" in Italy's sovereign risk. "Italy is stronger now, even though there are still uncertainties over the economic crisis and we have to overcome critical issues that prevent economic growth," Prime Minister Silvio Berlusconi said after the parliament vote.

Pier Luigi Bersani, the leader of the main centre-left opposition Democratic Party, harshly criticised the plan, saying: "It hits the weakest and the poorest ... It does nothing for growth and does not shelter us from the storm." Italy has been swept by uncertainty on the markets in recent days and the central bank warned that if high long-term borrowing rates persist this would have "considerable costs" for public finances and risks for the economy.

The bank added that recent tensions in the 17-nation eurozone had "increased the urgency of proceeding with a consolidation of public finances" in order to "lower risk premiums and diminish long-term borrowing rates."

Financial markets are on edge as a crisis over the ability of heavily-indebted European countries to repay their loans has threatened to spread to Italy and Spain -- the eurozone's third and fourth biggest economies. Eurozone nations are set to hold an extraordinary summit on July 21 in Brussels on ways to tackle the debt crisis and provide fresh aid for Greece. The Greek government and private creditors held talks in Rome on Friday amid plans for banks and insurers to shoulder a major part of any new rescue plan.

Speaking to Italian daily La Repubblica, the EU's Economic Affairs Commissioner Olli Rehn said: "Intensive negotiations are underway on what measures to take on Greece and how to avoid contagion."

He said high debt remained the Italian economy's "most vulnerable point." Italy's parliament has raced to adopt the austerity plan in record time after it was proposed just two weeks ago with the aim of cutting the deficit to 0.2 percent of Gross Domestic Product by 2014 from 4.6 percent last year.

Copyright AFP (Agence France-Presse), 2011

Copyright APP (Associated Press of Pakistan), 2011