The identity of his likely successor raises concerns that Brussels could gain control over national politics.
The austerity measures have been approved by the lower house of the Italian Parliament on Saturday evening.
The green light for the measures paves the way for the resignation of Prime Minister Silvio Berlusconi, who promised to step down once the reforms are passed. The outcome seemed predetermined after the package passed reasonably easily through the upper house by a vote of 156 to 12 on Friday.
Italian politician and a former European Commissioner Mario Monti is expected to take the top job. That appointment would please Brussels, but there are worries over whether it would have the support of the public. And a loss of sovereignty is another deep concern, with the move being seen as Brussels extending its influence in national politics.
It is far from certain whether the unelected caretaker government will have enough credibility to implement these harsh belt-tightening measures. Public support is absolutely vital, because Italy has already seen rioting over austerity cuts in the past.