Big blow in parliament means end of era for Italy's Berlusconi

Besieged Italian Prime Minister Silvio Berlusconi suffered a big blow in a budget vote in parliament Tuesday as his center-right governing coalition lost its majority, and the premier himself faced mounting pressure to step down. As a result, Berlusconi promised to resign after meeting with Italian President Giorgio Napolitano, but set a condition that his resignation will follow the approval of the austerity plan in the parliament. According to ANSA news agency, the government's austerity plan is expected to be voted in parliament later this month. Berlusconi was defiant ahead of the vote on a 2010 public finance account, rejecting calls from opponents and even within his own coalition to step down. However, the vote, normally a routine, only garnered 308 yes votes, with one absteination, whereas 321 MPs, including the opposition and 10 deputies from the premier's own coalition, did not take part in the vote. Earlier in the day, the yield on Italy's benchmark 10-year bonds rose to 6.74 percent, setting a new record for the euro era for the third time in four days. Though the yield retreated slightly later in the day, it has moved within striking distance of the 7 percent threshold that forced the hand of Greece, Ireland, and Portugal, signaling the point where they needed bailout money from the European Union. But Italy, which is the eighth largest economy in the world and the third largest in the euro zone, has an economy nearly three times the size of those of Greece, Ireland, and Portugal combined, making it far too large for the European Union to bail out "It is difficult to imagine that we in Europe would have the resources to take a country the size of Italy into the bailout program," Finland's Prime Minister Jyrki Katainen told the Finnish parliament Tuesday. Luca Silipo, a former Italian Central Bank official and now an economist with Natixis SA, said the survival of the euro currency itself could be at stake if Italy follows suit with Greece. "If Italy gets to the same state Greece was in, it would no longer be possible to have the euro currency," Silipo said. "If Italy goes bankrupt, then France will be next. You clearly don't want Italy to have the same problem as Greece." Analysts said that if Berlusconi is indeed forced to resign, then the markets would welcome the news. Already, the Borsa Italiana in Milan welcomed the latest development, closing higher for the second consecutive session Tuesday. Though the bond yield touched a new high Tuesday, it fell as it became apparent that Berlusconi actually lost support of majority. "The current equation is a simple one: if Berlusconi is bad for the economy, then anything that makes it more likely Berlusconi will leave is welcome news," said Javier Noriega, chief economist with investment bankers Hildebrandt and Ferrara. Now it is clear that Berlusconi's departure is imminent, but it is not clear what will happen next. Before the announcement of the Berlusiconi promise to step down, the opposition leaders already stepped up their calls for the prime minister to resign when he failed to won a majority and the 2010 budget measure was approved by only 308 votes. It is widely believed that the 321 absentees and one formal abstention in the 630-seat chamber were apparently a solid majority for not supporting Berlusconi and his coalition. Erstwhile Berlusconi ally Umberto Bossi said earlier Berlusconi should be replaced by Angelino Alfano, the head of Berlusconi's People of Freedom party. Meanwhile opposition leader Pier Luigi Bersani and other opposition leaders have called for the formation of a non-partisan technical government that would take care of day-to-day matters of the state until a special election could be held. And it is still possible that Berlusconi could be asked by the president to oversee a caretaker government with diminished powers until elections can be held.