Italy, the world's seventh largest economy, is emerging as a new threat to the stability of the 17-country single currency zone. On Tuesday, Italian President Giorgio Napolitano announced that Prime Minister Silvio Berlusconi would resign, following a crucial budget vote in parliament. He won that vote, but lost the support of a majority of lawmakers.
Prime Minister Berlusconi departed his Rome residence for parliament knowing that the coming hours could decide his future as Italy’s leader.
A procedural vote in the lower house on the budget was used by Berlusconi’s growing number of political opponents to signal the end of his parliamentary majority.
Despite a wide margin in favor, 320 lawmakers did not vote at all. Opposition leaders claimed victory. "The vote showed that this government does not have a majority, said opposition leader Pierluigi Bersani.
The opposition demanded Berlusconi’s immediate resignation. But, as he has done so many times in his nine years in power, the prime minister initially refused.
Italy has been pummelled by the eurozone debt crisis in recent days. Investors see its deficit, 120 percent of GDP (gross domestic product), as unsustainable. The yield on Italian bonds, the interest rate Italy must pay to borrow money, soared to nearly 7 percent.
When rates reached similar levels in Greece, Ireland and Portugal, they were forced to seek bailouts from the EU (European Union) and the IMF (International Monetary Fund)
Traders in Germany, Europe’s strongest economy, expressed disappointment that Berlusconi has not already resigned.
"Mr. Berlusconi has proved to be a politician with a long, long life, and, therefore, we are expecting that we have to negotiate more or less with Mr. Berlusconi in the future, and that's why the markets are kind of disappointed because we need stability, and stability with Mr. Berlusconi is not yet guaranteed," said Oliver Roth of Close Brothers Seydler AG.
EU finance ministers met in Brussels to try to find ways of building a firewall around the two-year-old debt crisis. But Europe’s politicians are rapidly being overtaken by events.
Italy is Europe’s third largest economy. A debt crisis there would dwarf the problems caused by Greece.
The message from the markets is that Berlusconi is part of the problem, not the solution.