ITALY:ITALY HAS buckled to world pressure in a bid to halt a market rout endangering the global economy, pledging to speed up austerity measures and social reforms in return for European Central Bank help with funding.

After a frantic round of telephone diplomacy, Italian prime minister Silvio Berlusconi said his government would accelerate cuts to aim for a balanced budget in 2013, a year ahead of schedule, and press ahead with welfare and labour market reforms.

“We consider it appropriate to introduce an acceleration of the measures which we introduced recently in the fiscal planning law to give us the possibility of reaching our objective of balancing the budget early, by 2013 instead of 2014,” Mr Berlusconi said after a day of calls with world leaders including German chancellor Angela Merkel and US treasury secretary Tim Geithner.

Sources close to the matter said the European Central Bank had demanded such measures in exchange for buying bonds to ease the pressure on Italy, which has come under market attack.

Investors have been unimpressed by a €48 billion austerity package passed by Mr Berlusconi’s government, partly because most of the measures were delayed until after elections scheduled for 2013, for clear political reasons.

The talks in Rome, joined by Gianni Letta, cabinet undersecretary, represented the first departure from Mr Berlusconi’s failed efforts to ride the storm by largely blaming external forces and market “speculators” for the rise in borrowing costs. The country’s debt is equal to almost 120 per cent of gross domestic product.

The Italian government would continue to work on the measures throughout August and parliament could be called back early from its summer recess to pass legislation, the official said.

Measures set to be announced include a plan to amend the constitution to make a balanced budget mandatory, a second constitutional change that would force “closed professions” to liberalise services, and a speeding-up of welfare and other structural reforms designed to boost Italy’s stagnant economy.

Cuts in the “cost of politics” – including salaries of elected officials and subsidies to political parties – were also on the agenda, which had been agreed in outline with leaders of employers’ associations and trade unions on Thursday.

“This is a strong and credible plan,” the official insisted. He said Mr Berlusconi and Mr Tremonti were trying to put their deep personal differences behind them and work together. – (Additional reporting by Financial Times)