The Italian senate is holding a debate - followed by a vote - on austerity measures designed to avoid a bailout of the eurozone`s third largest economy, according to BBC.

The measures are likely to be approved, with the lower house voting at the weekend and paving the way for Prime Minister Silvio Berlusconi to resign.

A technocrat government possibly led by former EU commissioner Mario Monti is being debated.

On Thursday, Italy raised 5bn euros (£4.3bn) from new government bonds.

But this was at an interest rate of 6.087% to borrow the money for one year.

The upper house is due to begin its debate on the austerity law at 09:30 GMT (10:30 local time), with a vote expected in the evening.

Mr Berlusconi, who lost his parliamentary majority in a vote on Tuesday, has promised to resign after the austerity measures are passed by both houses of parliament.

Nervous markets

Italy`s leaders are desperate to signal that they can bring the country`s finances under control, says the BBC`s Alan Johnston in Rome, and they are moving fast.

Mr Monti, a well respected economist, is exactly the sort of man that the money markets would like to see take charge at this time of crisis, our correspondent says.

The austerity package foresees 59.8bn euros in savings from a mixture of spending cuts and tax rises, with the aim of balancing the budget by 2014. Measures include:

  • An increase in VAT, from 20% to 21%

  • A freeze on public-sector salaries until 2014

  • The retirement age for women in the private sector will gradually rise, from 60 in 2014 until it reaches 65 in 2026, the same age as for men
  • Measures to fight tax evasion will be strengthened, including a limit of 2,500 euros on cash transactions
  • There will be a special tax on the energy sector

The Italian president has made Mr Monti a senator for life, meaning he will be eligible to take part in Friday`s vote.

President Giorgio Napolitano said he wished to "dispel any doubt or misunderstanding" on when Mr Berlusconi would fulfil his promise to resign.

If the lower house completes its vote on Saturday, President Napolitano could accept Mr Berlusconi`s resignation as early as Saturday evening.

He could then formally ask Mr Monti or another candidate to form a government of technocrats.

On Wednesday, the interest rate on 10-year Italian government bonds touched 7%, the rate at which Greece, Ireland and Portugal were forced to seek bailouts from the EU.

An EU team has begun work in Rome, monitoring how Italy plans to cut its crushing debt burden, 120% of annual economic output (GDP).

The Italian economy has grown at an average of 0.75% a year over the past 15 years.