Prime Minister Mario Monti announced a tax cut for low-income earners, a surprise move to reward Italians after months of austerity measures that have damped recovery prospects in the euro-zone's third-largest economy, The Wall Street Journal reported. Though the measures also include a billions of euros of cuts in public spending, Italy's technocratic government billed the income-tax reduction as proof that a year of sacrifices aimed at staving off the prospect of default for the country's indebted state is paying off.

Deiulemar Shipping, a major Italian dry freight group, has been declared bankrupt owing more than 500 million euros, an Italian court and the company said on Wednesday, the latest casualty of a worsening freight market crisis. The slump, one of the worst ever faced by the sector, has sunk a number of dry bulk firms including Britain's oldest, Stephenson Clarke Shipping Ltd. "Deiulemar Shipping was declared bankrupt by the court of Torre Annunziata this week," said Astolfo Di Amato, the lawyer representing Deiulemar Shipping.

Prime Minister Mario Monti may have saved Italy from ruinous default but the growth potential of Europe's most sluggish economy is as weak as ever, and that means prospects for lasting debt reduction remain fragile, Reuters reported in an analysis. Thanks to his decisive austerity measures and personal credibility, the economist and former European commissioner has put Italy back at the centre of European decision making and helped to lower its borrowing costs.

UniCredit has asked a court to start insolvency proceedings for loss-making Italian investment company Sopaf, judicial sources said on Wednesday, Reuters reported. Sopaf, which first failed to pay back debt last November and has net debt of around 100 million euros ($129 million), said in a statement on Wednesday it had received no official notice about the insolvency proceedings request.

Investors in about 5 billion euros ($6.3 billion) of Banca Monte dei Paschi di Siena SpA’s junior debt face a more than even-money chance of suffering losses as bad loans pile up at the world’s oldest bank, Bloomberg Businessweek reported. The cost of insuring 10 million euros of the lender’s subordinated debt is 2.75 million euros in advance and 500,000 euros a year, signaling an almost 60 percent probability of default, according to data provider CMA. That’s up from 1.7 million euros upfront on Jan.

Some Italian banks are prodding the Bank of Italy to let them revalue at current prices the stakes they have owned in the central bank for nearly 80 years, The Wall Street Journal reported. The move is aimed at bolstering the balance sheets of Italy's banks and was proposed in recent weeks by individual banks and an industry group. So far, the Bank of Italy has given no indication that it will agree to the revaluation, but proponents gained some optimism when the central bank said it is open to discussions on how to change its unusual ownership structure.

During an all-night European summit in June, Mario Monti, the Italian Prime Minister, gave German Chancellor Angela Merkel an unexpected ultimatum: He would block all deals until she agreed to take action against Italy's and Spain's rising borrowing costs, The Wall Street Journal reported. Ms. Merkel, who has held most of the euro's cards for the past two years, wasn't used to being put on the defensive. "This is not helpful, Mario," Ms. Merkel warned, according to people present.

Italy needs moral support from Germany but not its cash, Prime Minister Mario Monti said in an interview published on Sunday as German conservatives renewed calls for Greece to leave the euro zone, Reuters reported. The Italian leader also told weekly magazine Der Spiegel that he was concerned about growing anti-euro, anti-German and anti-European Union sentiment in the parliament in Rome.

Italian Prime Minister Mario Monti is stepping up pressure on Sicily to tighten its spending as the government seeks to stave off any prospect that the island, one of Italy's poorest regions, risks insolvency, The Wall Street Journal reported. Sicily must undergo a government-monitored austerity program aimed at restructuring the region's public administration—ranging from local hospitals to schools and waste-collection services—with the aim of cutting costs, Mr. Monti's office said in a statement on Tuesday.

As Prime Minister Mario Monti fights to protect Italy from the contagion driving up its borrowing costs to perilous levels, one region in particular has been in the spotlight: Sicily, which some fear has become “the Greece of Italy” and is at risk of defaulting on its high public debts, the International Herald Tribune reported. Mr.