Italy this week signed off on $850 million for the second phase of a planned Alpine railway tunnel, seen as a key pillar of European transportation policy.

The Inter-ministerial Committee for Economic Development, a government planning committee led by Italian Prime Minister Mario Monti, approved funding for the Brenner Base tunnel Monday. That completes Italy's $1.34 billion share of the first two of four construction phases of the $11 billion effort.

Calling the planned 40-mile tunnel beneath the Brenner Pass to Austria a "key project for the growth and development of the country," the committee authorized the second tranche of funding after previously approving $450 million in 2010 for its first phase.

Of the $850 million authorized Monday, $400 million will come from Rome through the newly enacted "Stability Law" budget reform package, which increases Italy's value-added tax in the second half in 2013 and imposes a new EU tax on financial transactions, known as the Tobin Tax.

The measures are expected to add $12 billion to government coffers.

The other $450 million for the Brenner Base tunnel is to come from the autonomous Italian provinces of Trentino and Bolzano, which own the A-22 Brenner Motorway that runs through the southern approach to the tunnel.

A deal between Trentino President Alberto Pacher and Italian Deputy Minister of Infrastructure and Transport Mario Ciaccia was struck Friday, in which Rome committed to improving the A-22 in conjunction with the tunnel project, the Trento, Italy, news website L'Adigetto reported.

The Brenner Base tunnel will serve as the centerpiece of a high-capacity railway running between Munich, Germany, and Verona, Italy.

The construction of that stretch would complete the missing link of the European Union's planned 1,360-mile "TEN-1" rail axis from Berlin to Palermo, Sicily -- a key element of the European Union's transportation policy that seeks to enhance continental economic cohesion by upgrading north-south rail, energy and communications links.

The tunnel -- to be completed in 2026 -- will run 34 miles from Fortezza in northern Italy to Innsbruck, Austria, where it will connect to the existing 6-mile Innsbruck railway bypass tunnel. Together, they would stretch 40 miles, making it the longest railway tunnel in the world.

Austria last year earmarked $1.7 billion for the first two phases. The European Union is picking up 40 percent of the construction costs -- largest percentage provided by Brussels for an infrastructure project.

Pat Cox, the European Union's coordinator for the project, said that "despite the ongoing (financial) crisis and their economic difficulties, both Italy and Austria are remaining deeply committed in the implementation of this fundamental mobility project for the Alpine area and for the whole of Europe."

The tunnel, first approved by the European Union in 2004, is to be used primarily by freight trains. It will include two tubes connected every 1,100 feet with trains traveling in one direction on single tracks.

The operational speed for freight traffic through the tunnel will be around 100 mph, with the travel time through the Brenner Pass more than cut in half, its backers say.