Source: Reuters
Italian Prime
Minister Silvio Berlusconi said on Tuesday he would resign after
suffering a humiliating setback in parliament that showed a party revolt
had stripped him of a majority.
Berlusconi confirmed a
statement from President Giorgio Napolitano that he would step down as
soon as parliament passed urgent budget reforms demanded by European
leaders after Italy was sucked into epicenter of the euro zone debt crisis.
The
votes in both houses of parliament are likely this month and they would
spell the end of a 17-year dominance of Italy by the flamboyant
billionaire media magnate.
His
failure to implement reforms fueled a party revolt and Berlusconi told
his own Canale 5 television station that the only option was an early
election. However, this could prolong the uncertainty that has sapped
market confidence.
Napolitano said
he would now hold consultations on the formation of a new government.
Markets and Napolitano himself are thought to favor a technocrat or
national unity government.
Berlusconi's
government won a key budget vote after the opposition abstained on
Tuesday but failed to secure a majority, obtaining only 308 votes in the
630-seat lower house, eight short of the 316 needed to be sure of
passing legislation.
Pier Luigi
Bersani, the leader of the main opposition Democratic Party, said Italy
ran a real risk of losing access to financial markets after political
uncertainty pushed yields on government bonds toward a red line of 7
percent.
"I ask you, Mr Prime
Minister, with all my strength, to finally take account of the situation
... and resign," Bersani said immediately after the vote.
Italy, considered too big to bail out, has replaced Greece as the main cause for concern in the euro zone's sovereign debt crisis.
ON THE ROPES
Berlusconi
has been on the ropes for weeks, beset by a string of sex and legal
scandals, political defeats and, most crucially, a loss of confidence on
international markets.
But the
75-year-old, who has dominated Italian politics for most of the past two
decades, had steadfastly refused to step down until Tuesday's vote and
battled until the last to win over rebels in his PDL party.
The
vote showed he had failed to stem the revolt and Berlusconi's
bitterness was revealed by a photographer who caught the words "8
traitors" jotted down on his notepad in parliament after the result was
read out by the speaker.
The news
that Berlusconi had finally agreed to resign came after European markets
closed but the euro jumped against the dollar and U.S. stocks edged up.
Earlier,
Berlusconi's key coalition ally Umberto Bossi, head of the
devolutionist Northern League, said Berlusconi should be replaced by
Angelino Alfano, secretary of the premier's PDL party.
The
League, and many members of the PDL, were believed to have wanted
Berlusconi to make way for a new center-right government to restore the
confidence of markets without handing power to a transitional
administration.
The center-left
opposition said they had abstained to lay bare the weakness of
Berlusconi's support, while allowing formal ratification of the 2010
budget.
Interest rates on Italy's debt have soared to levels that are causing deep concern about whether the euro zone can survive if its third largest economy cannot service its debts.
BOND YIELDS SOAR
Yields
on Italy's 10-year benchmark bonds rose to 6.74 percent on Tuesday
before dropping back. Analysts said Italy was reaching the point at
which Portugal, Greece and Ireland had been forced to seek a bailout.
Finnish
Prime Minister Jyrki Katainen said Italy was just too big to bail out.
"It is difficult to see that we in Europe would have resources to take a
country of the size of Italy into the bailout program," he told
parliament in Helsinki.
As the
spread between Italian and German bonds -- a reflection of the extra
risk of holding Italian bonds -- approached 5 percent, Italian
employers' association leader Emma Marcegaglia said: "We can't go on
like this for long."
Analysts say
current interest rates, if maintained, would cancel out the budget
savings planned as part of a painful austerity program.
Even
when Berlusconi goes, there is no guarantee that reforms to cut Italy's
debt and boost growth will be quickly implemented and relief on markets
may not last long.
There is no
agreement among political parties on either a national unity or
technocratic government and Napolitano's consultations may be difficult.
Berlusconi
and his closest allies say appointment of a government of technocrats
-- the option favored by markets and it is thought Napolitano -- would
be an undemocratic "coup" that ignored the 2008 election result that
brought the center right to power.
