Italy is to allow the International Monetary Fund to monitor its economic reform programme.
Prime Minister Silvio Berlusconi agreed at the G20 summit on Friday to the IMF to monitor its progress with reforms of pensions, labour markets and privatisations.
European Commission President Jose Manuel Barroso says the government in Rome sought the oversight under its own initiative.
Mr Berlusconi says he rejected an offer of IMF funding.
Chancellor Angela Merkel of Germany says reports on Italy will be compiled every quarter and President Nicolas Sarkozy of France says the arrangement is great.
Italian officials previously denied such a deal was likely, saying Italy was only seeking advice from the IMF.
Italy agreed a limited package of budget reforms on Wednesday evening.
But the BBC reports the cabinet failed to agree to issue a decree implementing the changes, meaning that they must now go to a confidence vote in parliament.
International Monetary Fund managing director Christine Lagarde has said that the planned reforms "lack credibility".