Official data showed on Tuesday Italy shrank further into recession in the second quarter for a 2.5 percent yearly decline.

The falling figure threatens the attempts of Mario Monti's government to control a debt crisis that is undermining the whole eurozone.

According to a financial data provider FactSet, Italian economy contracted by 0.7 percent in the second quarter compared with the previous three months.
  
Analysts say a 0.7 percent fall in GDP means the country has now been contracting for at least a year.
   
This will weaken tax revenues and hit jobs and consumer spending, a vicious circle which makes it harder for Monti to meet his public finance goals.

Monti has vowed to cut the budget deficit to 0.1 percent of GDP.
 
And a Reuters survey last month forecast that the budget deficit this year would be 2.3 percent of GDP, and 1.3 percent in 2013.
   
Moreover, Italian benchmark bond yields are still stubbornly close to 6 percent.

Amid the bad economic situation, investors have become increasingly concerned about Italy's ability to bring down public debt of around 123 percent of output.
    
To head off a mounting debt, Monti passed austerity measures worth more than 20 billion euros at the end of last year.

Gian Luca Clementi, Professor from New York University Stern School of Business, also urges Italian leaders to implement more far-reaching and painful structural reforms.

SOUNDBITE(ENGLISH) GIAN LUCA CLEMENTI, NYU STERN SCHOOL OF BUSINESS:
"Even this government made major advances in trying to reign in the deficit, the government didn't do much in terms of introducing the reforms that are key in order to essentially lead the country to recovery."

Professor Clementi adds cutting the government spending size is one of the reform goals.

SOUNDBITE(ENGLISH) GIAN LUCA CLEMENTI, NYU STERN SCHOOL OF BUSINESS:
"So the purpose of this reform obviously to bring down the size of government, to make sure that a lot of these services that now are provided to population by the government in fact are provided by the private sector. So essentially reduce dramatically the size of government, so the private sector may flourish once again."

To cut spendings, Italian lawmakers gave final approval Tuesday to 26 billion euros in spending cutbacks over three years.

That will see a 10 percent cut in the ranks of public sector workers.
  
Much of the savings will be found in the health and public administration budgets.
  
There will also be a reduction of 20 percent in the number of public sector managers and a 10 percent cut in the ranks of ordinary public sector workers.

The move is to generate the savings of 4.5 billion euros this year, 10.5 billion in 2013 and 11 billion 2014.
     
The cutbacks will allow Italy to avoid another hike in the VAT sales tax from 21 to 23 percent in October.

Despite Monti government's efforts to curb the deteriorating economy, Professor Clementi says Italy will have to ask for IMF help if nothing more is really done.
  
SOUNDBITE(ENGLISH) GIAN LUCA CLEMENTI, NYU STERN SCHOOL OF BUSINESS:
"In the next 3 months, given the amount of refinancing that the central government needs, if they keep on borrowing at this rate, the spreads are going to grow further and further and the country is going to ask, as it happened to other countries before, for the help of the IMF. I don't see Christmas at the latest. The country, if nothing is really done, is going to have to go to the IMF and ask for money."

But for now, Monti publicly stated that he was not planning to ask for financial help from the European Rescue Fund.