Berlusconi to resign after parliamentary setback

Silvio Berlusconi

ROME,  (Reuters) – Italian Prime Minister Silvio  Berlusconi said yesterday he would resign after suffering a  humiliating setback in parliament that showed a party revolt had  stripped him of a majority.

Silvio Berlusconi

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 the epicentre 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 fuelled 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 favour a technocrat or national unity government.

Berlusconi’s government won a key budget vote after the  opposition abstained yesterday 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 towards 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 centre-right  government to restore the confidence of markets without handing  power to a transitional administration.

The centre-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 yesterday 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 programme,” 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.”