Italy has avoided an EU budget warning by promising a package of €7.5 billion in spending cuts and tax hikes to bring its deficit into line with the Stability and Growth Pact.

Italy's Prime Minister, Mr Silvio Berlusconi, told EU finance and economics ministers in Brussels that he would seek approval for the measures from his cabinet within the next 10 days and implement them "with rigour".

Mr Berlusconi attended the meeting as his country's acting economics minister, following the abrupt resignation of Mr Giulio Tremonti last week.

Mr Tremonti was forced out of his post as economics minister by Mr Berlusconi's junior coalition partners after a row over spending cuts.

The EU ministers yesterday agreed to accept Mr Berlusconi's assurances and abandon the disciplinary procedure. "Italy has responded to the concerns expressed. The procedure is closed," they said in a joint statement.

The European Commission recommended that Italy be given an early warning because the country's budget deficit is expected to reach 3.2 per cent of GDP this year, breaching the 3 per cent limit laid down in the Stability and Growth Pact.

The Economic and Monetary Affairs Commissioner, Mr Joaquin Almunia, expressed satisfaction yesterday with Mr Berlusconi's proposals.

"According to our first assessment of the measures that were presented by Mr Berlusconi, the amount of €7.5 billion for this year is more or less the same as what we have asked for. Obviously we will also look at the evolution for next year," he said.

The Minister for Finance, Mr McCreevy, also welcomed the outcome of yesterday's meeting, adding that Italy's proposals showed that the pact remained an effective mechanism for influencing budgetary policy in the member-states.

"The euro group agreed with Mr Tremonti as finance minister some time ago that Italy would bring proposals to the July meeting regarding the budgetary changes they were going to make. Mr Berlusconi today outlined the proposals which the Italian government intend to take and since that is what was agreed with the Italian minister some months ago, that was satisfactory to the Eurogroup," he said.

Ministers from the 12 euro zone states yesterday discussed the possibility of appointing a chairman of the Eurogroup for a period of two and a half years.

At present, the finance minister from the state that occupies the EU presidency chairs the group for six months. When a member-state outside the euro zone occupies the presidency, the next euro zone state due to take up the presidency chairs the Eurogroup.