Berlusconi vows quick passage of austerity plan

ROME (Reuters) - Italian Prime Minister Silvio Berlusconi Monday promised an austerity bill would be approved quickly without further changes, seeking to calm fears that Italy had lost the will to push through the unpopular plan.

The 54-billion-euro package, aimed at balancing the budget by 2013, is in the final stages of a parliamentary approval process after weeks of changes to the measures, squabbling among allies and public protests that have unnerved European partners and bond markets.

Berlusconi said the package would be passed by the lower house of parliament this week, perhaps as early as Wednesday. The chamber is due to begin discussing the bill later Monday.

The 74-year-old media magnate said he was "urgently" traveling to Brussels to reassure European leaders over the chaos around the deficit-cutting measures, dismissing accusations the trip was timed to avoid a Tuesday appointment with magistrates.

"It's absurd -- thanks to the behavior of the opposition and its newspapers, a lot of confusion has been created around our austerity package," Berlusconi told Italian television.

"It has made European authorities and institutions think the government wants to take a step back on the approval of the austerity budget and that we're not seriously committed to making the sacrifices needed to balance the budget by 2013."

The package to "save Italy" -- which now includes a 1 percent hike in sales tax, bringing forward the pension age for some women and a 3 percent levy on incomes over 300,000 euros ($422,000) -- will be spared further chopping and changing, he promised.

MARKET PRESSURE GROWS

Financial markets have yet to be convinced, however with a T-Bill auction Monday sending the government's cost of borrowing over 12 months surging to a three-year high [ID:nL5E7KC1G1].

The premium that 10-year Italian government bonds pay over safer German Bunds rose above 380 basis points in early trading from just below 370 basis points Friday, while the cost of insuring Italian debt against default hit a record high on Monday.

Italian bond yields spiked to more than 400 basis points last month over fears on Italy's ability to cut its 1.9 trillion euro debt pile, falling back only after the European Central Bank stepped in to buy Italian bonds.

They began to creep up again as Berlusconi's government dithered over the austerity budget and measures to stimulate growth in the euro zone's third largest economy, whose public debt is equivalent to 120 percent of gross domestic product.

Friday's announcement that ECB board member Juergen Stark was stepping down over his opposition to the bond-buying policy and fears of a default in neighboring Greece have kept up pressure on yields.

Italy's blue-chip stock index also tumbled 3.6 percent Monday alongside a broader slump in European markets.

In more bad news for Italy, data showed industrial output fell unexpectedly in July, adding to signs it is struggling to kickstart its stagnant economy.

Adding to Berlusconi's worries, the list of influential voices demanding he step down has grown even as he insists he will see out his term ending in 2013.

The latest to demand his resignation was his old ally-turned-enemy Gianfranco Fini, who made the appeal days after the head of Italy's business lobby said the government should step aside if it could not handle Italy's problems.

Fini's split with Berlusconi last year appeared to set in motion a steady decline in the media mogul's fortunes. Since then, Berlusconi has faced an embarrassing prostitution scandal, corruption trials, a public spat with his economy minister and a widening rift with his Northern League ally.

A premier who appeared invincible when he came to power for a third time in 2008 now faces slumping ratings and Italians taking to the streets to show their contempt for an austerity budget many see as unfair.

(Additional reporting by James Mackenzie; Editing by Andrew Heavens)