By Giuseppe Fonte
ROME (Reuters) - Prime Minister Mario Monti unveiled a 30 billion euro package of austerity measures on Sunday, raising taxes and increasing the pension age in a drive to shore up Italy's strained finances and stave off a crisis that threatens to overwhelm the euro zone.
Packed into a single emergency decree which comes into effect before formal parliamentary approval, the measures followed growing pressure for sweeping measures to restore confidence in the euro zone's third-largest economy.
Monti said the package, divided between 20 billion euros of budget measures over 2012-14 and a further 10 billion euros in measures to boost growth, was painful but necessary.
"We have had to share the sacrifices, but we have made great efforts to share them fairly," he told a news conference, in which he said he had renounced his own salary as prime minister and economy minister.
In a mark of the emotional impact of the cuts, Welfare Minister Elsa Fornero broke down in tears as she announced an end to inflation indexing on all but the lowest pension bands, a move that will mean an effective income cut for many pensioners.
The measures come before one of the most crucial weeks since the creation of the single currency more than a decade ago, with European leaders due to meet on Thursday and Friday in Brussels to try to agree a broader rescue plan for the bloc.
Italy, with a public debt of around 120 percent of gross domestic product, has been at the centre of Europe's debt crisis since yields on its 10-year bonds shot up to around 7 percent, similar to levels seen when countries such as Greece and Ireland were forced to seek a bailout.
Adoption of the package is seen as vital for re-establishing Italy's shattered credibility with financial markets after a series of unfulfilled promises by the previous centre-right government of former Prime Minister Silvio Berlusconi.
Unions said the cuts will hit poorer workers and pensioners disproportionately hard, but there was little sign of serious political opposition to Monti's plan.
With Italy close to a debt emergency that would destroy Europe's financial defenses, EU leaders will meet in Brussels this week hoping to agree steps to bind the bloc more closely with tougher fiscal rules.
SPENDING CUTS, TAX HIKES
With yields on Italian 10 year bonds near 7 percent and almost 160 billion euros of bonds needing to be refinanced by the end of April, the worry is that market confidence has been so badly damaged that outside help will be needed.
Deputy Economy Minister Vittorio Grilli said around 12-13 billion euros of the 30 billion euro package would come from spending cuts with the rest coming from tax increases.
As well as an end to inflation indexing for many pensioners, the measures will see the minimum pension age for both men and women raised in stages to 66 by 2018 with incentives to keep workers in employment until 70.
A new property tax, which head of Italy's local government association Graziano Delrio said would raise some 10-11 billion euros, will account for the bulk of the new revenues.
A two-percentage-point increase in value added tax could also be introduced from September next year, while there would also be new taxes on luxury goods like yachts and some gas-guzzling cars.
As part of a crackdown on tax evasion, cash transactions of more than 1,000 euros will be banned, and there were also measures to liberalize business opening hours and open up pharmacies and the transport sector to more competition.
The package also cut a number of local government functions in a bid to reduce the cost of administration.
Monti left for a later date the vexed question of reforming of contracts that hinder companies from laying off workers, a measure seen as key to overhauling the labor market, but which is bitterly opposed by unions.
(Additional reporting by Steve Scherer, Catherine Hornby and James Mackenzie; Editing by Sophie Hares and Alessandra Rizzo)
