Italy’s government and unions reached a landmark agreement on pension reforms early on Friday after overnight talks, potentially resolving one of the biggest challenges for the centre-left coalition of Romano Prodi, prime minister.

The agreement to raise the retirement age from 57 to 61 between 2008 and 2013 was a victory for Mr Prodi who had been forced to negotiate between supporters of pensions reform – such as the European Union, the International Monetary Fund and Italy’s central bank – on the one hand and left-wing opponents within his fragile coalition on the other.