The government in Italy is to cut spending by 26 billion euros over the next three years to plug the gap between spending and income.
The cuts include a 10% reduction in the number of civil servants and cuts to healthcare.
Investors are increasingly asking for higher rates of return for lending to Italy, which has a budget deficit is 3.9% of gross domestic product.
Prime Minister Mario Monti has a target of cutting that to 1.7% this year.
The cuts will also halve the number of provincial governments to about 50.
They aim to trim 4.5 billion euros this year, with a further 10.5 billion euros in 2013 and 11 billion euros in 2014.
The BBC reports the package means Italy will not now need to introduce an increase of 2% in value added tax and will be able to funnel 2 billion euros to the Emilia Romagna region, which was hit by two earthquakes in May.
The economy is in its fourth recession of the past 10 years.
The public sector payroll is suspected of showing a higher number of employees than are actually carrying out work for the state.