Italy Senate okays austerity plan, moves to chamber

The Italian Senate on Wednesday approved the government's widely criticised austerity programme aimed at staving off financial crisis in a vote of confidence called by Prime Minister Silvio Berlusconi.

The plan, which has been radically overhauled on several occasions under pressure from the European Central Bank and the European Union, now passes to the Chamber of Deputies, where Berlusconi has a slimmer but still stable majority.

It is expected to be definitively approved in the next few days.

Late on Tuesday, the government yielded to growing calls for the package to be reinforced, increasing value added tax, extending the retirement age for women in the private sector and introducing a tax on very high earners.

The Senate approved the plan, which aims to balance the budget in 2013, with 165 votes in favour and 141 against.

After weeks of criticism over the government's wavering on the package, Berlusconi called the confidence vote to put an end to any further discussion in the Senate. He would have been forced to resign had he lost.

Police used tear gas and baton charges to disperse demonstrators protesting against the measures outside the Senate while vote took place.

After the latest revisions the mix of tax hikes and spending cuts amount to more than 54 billion euros over the next three years, the Treasury says.

Italian bond yields fell back early on Wednesday after Germany's constitutional court rejected a lawsuit aimed at preventing Berlin, the euro zone's effective paymaster, from participating in bailouts for struggling governments.

International criticism has rained down on Berlusconi's centre-right government for the chaotic way in which it has responded to demands from the ECB for clear and concrete plans to cut its mountainous public debt.

As the crisis has continued, Berlusconi's own position has come under growing pressure with Italian President Giorgio Napolitano, European partners, unions and Italy's business leaders all voicing increasingly direct criticism.