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25 October 2011 Last updated at 21:19 GMT
Silvio Berlusconi is under conflicting pressures from Brussels and his own political allies Urgent talks are being held in Italy to try to break a stalemate over economic reforms demanded by the EU.
Prime Minister Silvio Berlusconi has been unable to convince his main coalition partner, the Northern League, to accept the measures - including proposals to increase the pension age.
Northern League leader Umberto Bossi has said the government was "at risk".
Rome's EU partners are demanding action to tackle Italy's huge public debt before a eurozone summit on Wednesday.
Eurozone leaders are to meet in Brussels to devise a strategy to confront the area's worsening debt crisis.
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Some suspect that France and Germany are trying to engineer Mr Berlusconi's departure ”
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Gavin Hewitt BBC Europe editor They are expected to agree a plan to reduce Greece's debt burden, strengthen European banks to withstand bond losses and scale up the eurozone rescue fund.
At a meeting over the weekend, Mr Berlusconi was publicly reproached by French President Nicolas Sarkozy and German Chancellor Angela Merkel who said that it was vital for Italy's public debt "to be reduced in a credible manner in the coming years".
Italy, the third largest economy in the eurozone, needs to issue some 600bn euros (£520bn; $835bn) in bonds over the next three years to refinance maturing debt.
Raising the retirement age is one of the key economic reforms demanded by the country's EU partners as a condition for supporting Italy's bonds.
But Mr Bossi has dismissed the idea, saying: "I'm not touching our pensions, which are fine, to bring up the age to 67 just to please the Germans."
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David Willey BBC News, Rome
In Brussels over the weekend Mr Berlusconi was given an ultimatum - he was told to go back to Rome and produce a credible plan by Wednesday.
He passed an austerity budget back in August but it does not seem to have convinced the market.
Since then, there has been a lot of political infighting and his popularity has reached an all-time low.
There is no overall plan in Italy - neither a plan A nor a plan B - and people in Brussels are getting a bit impatient. They see that he cannot deliver, which is putting him in a difficult political position at home.
He added: "The government is at risk."
However there were signs that progress had been made in talks between the two sides late on Tuesday.
A leader in Berlusconi's People of Freedom party (PDL), Angelino Alfano, said: "We have shown today that the relationship between the two parties, which has provided stability and reforms, still holds."
As the coalition parties held meetings, Italian President Giorgio Napolitano said in a statement that the country must do everything to reduce the risk to government bonds by making its determination to cut public debt more credible.
For the first time, Silvio Berlusconi has also raised the possibility that he might step down from the political stage after dominating Italian politics for 17 years.
"I hope the conditions arise where I can leave the responsibility of the presidency to others, perhaps remaining within the party as its founding father," Mr Berlusconi is reported as saying, according to La Repubblica newspaper.
"Whatever happens I will do what my party and the coalition ask of me."
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The French and German leaders still have not agreed how to bolster the eurozone's bailout fund There has been another hiccup in the eurozone's plans to announce a final rescue deal in Brussels to try to end the turmoil in the euro area. 
