ROME (AP) -- Under pressure to control its dangerous debt, Italy sped a package of reforms toward approval Friday and prepared to hand its dysfunctional government over to a technocrat who Europe hopes can save the country from going broke. Financial markets around the world rallied in relief.
In its own step toward stability, Greece, which preceded Italy as the epicenter of the European debt crisis, installed a new prime minister. The Dow Jones industrial average in New York rose 2 percent, and markets in Britain, France and Germany posted similar gains.
A set of austerity measures cleared the Italian Senate by a vote of 156-12. The lower chamber of Parliament will vote Saturday, and Prime Minister Silvio Berlusconi has said he will step down once the reforms are passed.
In a sign of confidence from investors, Italy's borrowing costs fell sharply. The yield on benchmark Italian 10-year bonds fell to 6.48 percent, safely below the crisis level of 7 percent reached earlier this week.
Greece, Ireland and Portugal all required international bailouts after their own borrowing rates passed 7 percent. The Italian economy would not be so easy to save. It totals $2 trillion, twice as much as the other three countries combined.
An Italian default could tear apart the coalition of 17 countries that use the euro as a common currency and deal a strong blow to the economies of Europe and the United States, both trying to avoid recessions.
The Senate chamber resounded with warm applause for Mario Monti, the distinguished economist expected to succeed Berlusconi. He was unexpectedly named senator-for-life this week, putting him in line to lead.
"Our warmest and most cordial welcome," Senate President Renato Schifani told Monti after proclaiming him senator-for-life, an honorific reserved for the handful of Italians who have most contributed to Italian society.
A Cabinet meeting has been scheduled immediately after the vote in the lower house Saturday, suggesting Berlusconi might tender his resignation then.
The austerity measures will be not enough to revive the dormant Italian economy. They raise the retirement age to 67, but not until 2026. They call for the sale of state property and privatizing some services but contain no painful labor reforms.
The reforms also offer tax incentives to companies that hire young workers in a country where the unemployment rate for people ages 15 to 24 hovers around 25 percent. Unemployment overall is closer to 8 percent.
"There is more to be done," said Herman Von Rompuy, president of the European Council, which sets the political course for the European Union. "The country needs reforms, not elections."
He added that Europe expects Italy to pass the reforms, at least as a first step.
In Greece, Prime Minister Lucas Papademos, a former vice president of the European Central Bank, assumed control of a temporary coalition government that will try to push through tough economic reforms and keep Greece from defaulting.
The Papademos government must pass a euro130 billion, or $177 billion, bailout from the European Union. That was the deal that Padademos' predecessor, George Papandreou, said he would put up for a vote. He later backed off and resigned.
Papademos will lead a government with ministers from three parties. The bitter rivalry of conservatives and Papandreou's Socialists is being set aside as Greece tries to get its financial act together.
Von Rompuy held previously scheduled talks with Berlusconi on Friday night, though no statement was released afterward. He also called on President Giorgio Napolitano, a sign of the EU's keen interest in the next steps of Italy's transition.
The hope is that politically neutral governments will have the strength to push through deeply unpopular and painful economic reforms needed to reduce the two countries' massive debt.
Italy has about euro1.9 trillion, or $2.6 trillion, in debt, and must roll over more than euro300 billion of its debts next year alone. But economic growth is weak, and without a strong economy, debt service can consume more and more of the budget.
The markets have clearly favored a Monti government, and many politicians have appeared to support it as well. Elements of Berlusconi's nearly defunct government argue for early elections, but others have thrown their support behind Monti, as have many in the opposition. The Northern League, whose support to Berlusconi has been key over his two decades in public life, remained opposed but seemed almost resigned by Friday afternoon to the reality of a broad-based Monti government.
Monti has won kudos from across Italy's political spectrum and abroad because he has defied being affiliated with the right or the left, said Thomas Klau of the European Council of Foreign Relations.
"The first thing he can bring to Italy at this juncture is his deep understanding of both the economic dynamics and political dynamics in Europe," he said. "His intellectual leadership and authority are recognized across Europe" - a contrast to Berlusconi, he said.