ITALIAN Prime Minister Mr Romano Prodi's cabinet approved a mini-budget yesterday in a bid to rein in the state deficit and earn Italy a place among the first wave of countries signing up to the European single currency.

Mr Prodi said that the package would raise 15.5 trillion lire (£5.85 billion) in 1997 and cut the deficit to 3 per cent of gross domestic product, as demanded by the Maastricht Treaty.

Much of the package is based on accountancy and fiscal changes, with the government expecting to raise six trillion lire by forcing companies to pay tax advances on their huge pools of severance payment funds.

Mr Prodi said negotiations with coalition allies and trades unions over welfare reform would start in mid-April, and promised that the eventual deal would be enshrined in the 1998 budget, which has to be approved by the end of this year.

The centre-right opposition bloc, led by Mr Silvio Berlusconi, had called on Mr Prodi to cut social spending in the mini-budget and economists say welfare reform is the only way to secure lasting peace for Italy's heavily indebted economy.

Details of the budget emerged in the press yesterday ahead of the cabinet's rubber-stamp. The package was roundly criticised by a number of editorials.

Italian financial markets were little moved as full details of the budget emerged.

"There is relief that the coalition was at least able to agree on the budget but disappointment that the content wasn't more meaty," said a bond trader, based in Lendon.