Italian Prime Minister Silvio Berlusconi is expected to meet coalition partners today to push through an unpopular €40bn austerity plan, his biggest test since suffering two major political defeats.
Mr Berlusconi needs the support of his Northern League partners to get the measures passed, however they are demanding tax cuts to increase public support for it.
The budget has heightened tension within Mr Berlusconi's fragile centre-right coalition, with economy minister Giulio Tremonti resisting pressure to dilute deficit-cutting proposals.
Some Italian newspapers reported Mr Tremonti had threatened to resign if his austerity plan was changed, but government sources played this down.
Markets and ratings agencies - wary of Greece's financial crisis spreading to big eurozone countries like Italy - are scrutinising the austerity package.
Moody's and Standard & Poor's have already warned in recent weeks they may cut Italy's credit rating because of its debt mountain, which at 120% of Gross Domestic Product is one of the biggest in the world.
Domestically Mr Berlusconi is under scrutiny too, having suffered defeats in mayoral elections and four referendums in the last month.
Relations are also strained between Mr Berlusconi and Mr Tremonti, who is considered a contender to succeed the media magnate at the helm of their centre-right party in the future.
Both were expected to meet coalition partners today to discuss the austerity plan, which is due to be approved by the cabinet on Thursday.
Economy ministry sources say the package will be worth some €43bn, with the aim being to eliminate the budget deficit by 2014.
The bulk of the savings are expected in the 2013-2014 period and will include cuts to ministry budgets, funding for town councils and spending on national health care.
Italy's budget deficit is targeted at 3.9% of GDP this year, down from 4.6% in 2010.
