Italy has announced a fresh round of austerity measures after an emergency cabinet meeting.
The 45bn euro ($64bn: £40bn) plan aims to balance Italy's budget by 2013, a year earlier than had been planned by slashing public spending and jobs.
PM Silvio Berlusconi said the measures were painful but unavoidable.
On Monday the European Central Bank announced it would buy Italian debt in a successful effort to lower its cost of borrowing.
The new measures come on top of a previous round of spending cuts announced in July which aimed to balance the budget by 2014.
Italy's borrowing costs rose sharply before the move as investors lost confidence in the government's ability to reduce its deficit.
Continue reading the main story
“Start Quote
Our hearts are bleeding”
End Quote Sylvio Berlusconi Italian Prime Minister
The ECB move increased the pressure on the government to bring forward detailed plans to balance the budget by 2013.
Solidarity tax'
After Friday's meeting, the cabinet agreed unanimously to 20bn euros of cuts in 2012 and 25bn in 2013.
"Our hearts are bleeding. This government had bragged that it never put its hands in the pockets of Italians but the world situation changed," said Mr Berlusconi. "We are facing the biggest global challenge."
More than 50,000 jobs will be cut in local government at some point in the future and some public holidays which fall on weekdays will be transferred to Sundays, in order the increase the number of working days in the year.
The measures include further cuts to regional budgets and a new "solidarity tax" on high earners, with those earning over 150,000 euros taxed an additional 10% in each of the next two years.
Tax on dividends and earned interest will also rise by 7.5%.
The measures still need to be approved by the Italian parliament, which must make its decision within 60 days.
The measures "risk having a negative effect on consumption by slowing down growth next year", warned Fabio Fois an analyst with Barclays Capital.
However the plan "goes in the right direction" to reducing the deficit, he added.
Regional leaders have criticised the cuts, saying services like education, health care and road maintenance will all suffer.
"For us, the fiscal measures which have been proposed are absolutely unjust," said Giuseppe Castiglione, head of the Union of Italian Provinces.
The Italian stock market recovered on Friday after Italy joined other European governments in banning short selling on some shares.
The main FTSE Mib index rose sharply, ending the day 4% up.
The 45bn euro ($64bn: £40bn) plan aims to balance Italy's budget by 2013, a year earlier than had been planned by slashing public spending and jobs.
PM Silvio Berlusconi said the measures were painful but unavoidable.
On Monday the European Central Bank announced it would buy Italian debt in a successful effort to lower its cost of borrowing.
The new measures come on top of a previous round of spending cuts announced in July which aimed to balance the budget by 2014.
Italy's borrowing costs rose sharply before the move as investors lost confidence in the government's ability to reduce its deficit.
Continue reading the main story
“Start Quote
Our hearts are bleeding”
End Quote Sylvio Berlusconi Italian Prime Minister
The ECB move increased the pressure on the government to bring forward detailed plans to balance the budget by 2013.
Solidarity tax'
After Friday's meeting, the cabinet agreed unanimously to 20bn euros of cuts in 2012 and 25bn in 2013.
"Our hearts are bleeding. This government had bragged that it never put its hands in the pockets of Italians but the world situation changed," said Mr Berlusconi. "We are facing the biggest global challenge."
More than 50,000 jobs will be cut in local government at some point in the future and some public holidays which fall on weekdays will be transferred to Sundays, in order the increase the number of working days in the year.
The measures include further cuts to regional budgets and a new "solidarity tax" on high earners, with those earning over 150,000 euros taxed an additional 10% in each of the next two years.
Tax on dividends and earned interest will also rise by 7.5%.
The measures still need to be approved by the Italian parliament, which must make its decision within 60 days.
The measures "risk having a negative effect on consumption by slowing down growth next year", warned Fabio Fois an analyst with Barclays Capital.
However the plan "goes in the right direction" to reducing the deficit, he added.
Regional leaders have criticised the cuts, saying services like education, health care and road maintenance will all suffer.
"For us, the fiscal measures which have been proposed are absolutely unjust," said Giuseppe Castiglione, head of the Union of Italian Provinces.
The Italian stock market recovered on Friday after Italy joined other European governments in banning short selling on some shares.
The main FTSE Mib index rose sharply, ending the day 4% up.
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