By James Mackenzie
ROME (Reuters) - Workers across Italy went on strike on Tuesday as the centre-right government of Prime Minister Silvio Berlusconi rushed to secure parliamentary backing for austerity measures vital to keep European Central Bank support.
The eight-hour strike called by the CGIL, Italy's largest union with 6 million members, disrupted public transport including air traffic, underlining a sense of emergency in the euro zone's third largest economy.
Federico Ghizzoni, chief executive of Unicredit, Italy's biggest bank said Europe needed to decide whether it wanted to retain the single currency or "give up."
"This is a test," he told a banking conference in Frankfurt, calling for more decisive action to stem the crisis.
Tuesday's strike, called to protest against the 45.5 billion euro (40 billion pound) austerity measures, coincided with the start of a debate in the Senate which the government hopes will see swift approval before the package moves to the lower house.
Many of the measures originally criticised by unions have been dropped but the protests brought out simmering anger at the burdens imposed on ordinary Italians by more than a decade of economic stagnation.
"It's wrong to target people like me, I am on the poverty line. I only make 1,000 euros a month," said Marco Vacca, a 49 year-old employee of an industrial laundry who joined a rally of thousands outside Rome's central rail terminal.
The CGIL, which has not been joined by more moderate unions, said about 58 percent of workers were on strike in sectors affected by the stoppage, roughly in line with other big protests this year.
Trade union protests were also planned in Spain, where parliament is debating inserting a German-style debt brake into the constitution to give greater force to deficit-cutting measures designed to regain financial market confidence.
Spanish unions called evening protest marches to denounce a fiscal rule they say will result in cuts to social spending and affect the poorest in society.
The euro zone's debt crisis appears at risk of spiralling out of control amid doubts about the willingness of Italy and Greece to push through unpopular austerity measures demanded by their partners, and hardening opposition to further aid in EU paymaster Germany.
ECB SUPPORT
Tuesday's Senate debate was due to start at 4:30 p.m. (3:30 p.m. British time) with upper house approval possible as early as Wednesday before the package moves to the lower house for final approval, originally expected by September 20.
The opposition Democratic Party has condemned the government over its response to the crisis and renewed calls for Berlusconi to resign but it has said it will not use delaying tactics to hold up a vote.
Pressure has risen on Italy to cut its 1.9 trillion euros of public debt, Rome's borrowing costs have risen steadily, despite intervention by the ECB to hold yields down by purchasing Italian bonds on the market.
The premium investors require to hold Italian paper rather than benchmark German bonds reached 366 basis points by mid-morning on Tuesday, more than 20 points above the equivalent Spanish spread.
"I don't think Italy is in full freefall but for sure it is a very critical situation," Nomura rate strategist Laurent Bilke told Reuters Insider Television.
"Any ECB intervention is conditional on action by the government and the market has started to doubt and say 'what if the Italian government does not deliver?'" he said.
Central bank patience has been sorely tested by the Berlusconi government's chaotic handling of the austerity package and the absence of concrete steps to meet his pledge to balance the budget by 2013.
On Monday, Mario Draghi, who takes over as head of the ECB in November, stepped up calls for Italy to act, delivering a pointed warning that the central bank's willingness to continue buying bonds "should not be taken for granted."
"ALARMING SIGNAL"
Underlining the growing political gravity of the crisis, the head of state, President Giorgio Napolitano said in a statement on Monday that markets had sent an "alarming signal" that urgent action was needed to restore faith in public finances.
He said there was time to insert measures "capable of reinforcing the efficiency and credibility" of the austerity package passed in parliament last month. It is currently undergoing revision.
Business daily Il Sole 24 Ore said an increase in VAT sales tax, so far resisted by Economy Minister Giulio Tremonti, may be added to the package. Other possible changes include a delay to retirement ages and some form of tax on high earners.
Italy has wrestled with sluggish growth and one of the world's highest levels of public debt for years but a modest deficit, high private savings and a conservative banking system had kept it largely on the margins of the crisis until July.
Berlusconi's government, which until recently boasted of keeping Italy out of the crisis, has struggled to build a defence against the market pressure, hampered by deep divisions in its own ranks over tax and pension issues.
Measures ranging from a tax on high earners, retirement delays for some university graduates, cuts to local government funding or the abolition of small town councils have been proposed, then dropped with bewildering speed.
In their place, Tremonti is putting his faith in stepped-up measures to combat tax evasion despite a long history of failure by successive Italian governments.
Berlusconi and Tremonti have appeared increasingly at odds over the package, heightening speculation of a possible political crisis which could bring down the government.
(Additional reporting by Catherine Hornby in Rome and Jonathan Gould and Edward Taylor in Frankfurt; editing by Paul Taylor)
