A key sticking point is a reform to pension schemes Italian Prime Minister Silvio Berlusconi after wrangling with his coalition partners Tuesday appeared to have reached an agreement to partially reform pensions ahead of a key European summit .
The premier faces intense pressure from European allies to prove Italy will not become the next Greece, needing an even bigger debt bailout than Athens and potentially jeopardising the whole eurozone.
Despite assurances he can deliver the required measures by Wednesday, Berlusconi faces dissension in the ranks, particularly from his Northern League coalition partner, and there has been talk that the government could fall.
However, by late Tuesday, a senior official in Berlusconi's People of Freedom party (PDL) said there had been some progress.
"We have shown today that the relationship between the two parties, which has provided stability and reforms, still holds," PDL secretary Angelino Alfano said.
An accord was coming together, especially on the key issue of reform of the pension system, Alfano said, adding that the "balance found with the Northern League will provide the answers (sought) by Europe."
As Italy scrambled to assure European allies it could fix its economy, Berlusconi and top party members attempted to thrash out details with senior Northern League members, especially over the contentious issue of pension reform.
And late Tuesday Education Minister Mariastella Gelmini said the League had accepted raising the retirement age from 65 to 67, but rejected any changes to the current plan of retirement after 40 years of contributions, regardless of age.
Silvano Moffa, a member of the majority who attended the meeting, said Berlusconi would send a letter to Brussels probably Tuesday evening detailing the reforms.
Berlusconi's PDL party supports modifying the pension system but the Northern League has threatened to pull out of the coalition and bring down the government if extensive changes are made.
Late Tuesday League leader Umberto Bossi said the government was taking a political risk with the pension reforms, but implied that an agreement had been reached, which now faced European scrutiny.
"In the end we found a way but now we have to see what Europe will say," Bossi said.
On Sunday, Berlusconi promised Brussels he would extend the retirement age to 67 years, to bring Italy into line with other European countries.
Saddled with a 1.9 trillion euro debt mountain, 120 percent of its GDP, EU leaders demanded action from Berlusconi before the Wednesday 1600 GMT eurozone summit.
Widespread accusations that German Chancellor Angela Merkel and French President Nicolas Sarkozy ridiculed Italy during a press conference in Brussels on Sunday only added to the tension.
The pair had appeared at pains to offer a clear answer when asked if Berlusconi had their confidence to fight Italy's giant debt, and photographs of them laughing were splashed over newspapers who accused them of "sarcasm."
President Giorgio Napolitano, who is widely respected by ordinary Italians, slammed the German chancellor and French president for "inappropriate and unpleasant public expressions."
The European Commission insisted that there had been no attempt to humiliate Italy over its debt problems and said EU states must get used to scrutiny of their finances.
Doubts over Italy's ability to weather the crisis come despite budget cuts adopted by parliament in July and September aimed to bring the country back into fiscal balance from 2013 and reduce its total debt.
European officials believe Italy has slipped back on its commitments, especially since August when the European Central Bank moved to support Rome by buying up its debt on the secondary markets.
Italian bond yields are still hovering near the six-percent level that triggered large-scale intervention by the ECB but Berlusconi has insisted he does not need lessons on keeping the country afloat from his European partners.