Italy's government faces a confidence vote in parliament on Friday, called to speed up approval of a 33-billion euro ($43 billion) austerity package intended to restore financial market confidence in the euro zone's third largest economy.

Prime Minister Mario Monti's cabinet of unelected technocrats has the support of an overwhelming majority of members in both houses of parliament. This means Friday's vote in the lower Chamber of Deputies, expected to be held sometime around 1230 GMT, should pass easily.

The austerity plan will then move to the Senate, where a similar vote is expected to be held before Christmas, marking the final passage of a decree law that went into effect on December 4 but needed parliamentary approval within 60 days.

Monti's government was appointed last month to face a collapse in market confidence that put Italy at the heart of the euro zone debt crisis. He has raced to push through the package of tax increases, spending cuts and pension reform aimed at meeting Italy's goal of balancing its budget in 2013.

However, analysts say rising borrowing costs and the prospect of a fast-deepening recession still threaten to undermine Italy's deficit cutting efforts, while much of the country's fate is out of its hands, as investors react to a lack of decisive action by European leaders.

Monti's government has called the confidence votes to curtail debate on dozens of amendments to the law, many of them tabled by the opposition Northern League party.

Before Friday's vote, Monti warned that the solution to the crisis must be through a united approach rather than an attempt by northern European countries to blame those on the southern periphery - a thinly veiled criticism of Germany and its emphasis on budget rigor rather than measures to stimulate growth.

Europe's response should be wrapped in a long-term sustainable approach, not just to feed short-term hunger for rigor in some countries, Monti told a conference of senior international financial officials in Rome.

To help European construction evolve in a way that unites, not divides, we cannot afford that the crisis in the euro zone brings us ... the risk of conflicts between the virtuous North and an allegedly vicious South, he added.

On Thursday Emma Marcegaglia, head of the national employers' group Confindustria, said Germany should abandon its rigid positions because the euro itself was at risk.

RECESSION

Monti's predecessor, Silvio Berlusconi, had urged a confidence vote, saying his PDL party - the biggest in parliament - would support the government out of a sense of responsibility, not because it agrees with all the sacrifices being asked of Italians.

Both PDL and the centre-left Democratic Party have misgivings about parts of the bill but cannot sabotage the government for fear of unleashing an economic catastrophe that probably would lead to Italy defaulting on its debt.

Underlining the depth of the crisis, Confindustria forecast on Thursday that the Italian economy would shrink 1.6 percent next year, slashing its previous estimate of 0.2 percent growth,

and said the country was already in recession.

It said even this forecast was based on Italian bond yields dropping to below 5 percent by April compared with around 7 percent now - the level at which Ireland, Greece and Portugal were forced to take bailouts.

Such a rescue for the much bigger Italian economy would probably overwhelm Europe's defenses, which is why the country is in the frontline of the euro zone crisis.

The Northern League heckled Monti in parliament this week and held up placards saying: This is not a budget, but a hold-up. They also tried to obstruct the calling of the confidence vote by filibustering in the chamber before Speaker Gianfranco Fini cut them short.

(Writing by Barry Moody; editing by David Stamp)

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