Berlusconi promises to resign amid Italy debt woes

By Victor Simpson

Associated Press

Published: Tuesday, Nov. 8 2011 12:25 p.m. MST

Italian Premier Silvio Berlusconi, left, holds the hand of Reforms Minister Umberto Bossi during a voting session at the Lower Chamber, in Rome, Tuesday, Nov. 8, 2011. Premier Silvio Berlusconi won a much-watched vote Tuesday, but the result laid bare his lack of support in Parliament as financial pressure from the eurozone debt crisis pummeled Italy.

Andrew Medichini, Associated Press

ROME — Italian Premier Minister Silvio Berlusconi said for the first time Tuesday that he would resign once parliament approves economic reforms, and Greek politicians said they were close to agreeing on a new government to lead their country through painful cutbacks.

Both governments are under heavy pressure to reassure financial markets that the 17-country eurozone is moving quickly to reduce crippling government debts before those debts break apart the monetary union and plunge the world into a new recession.

Berlusconi's promise to resign came during a meeting with Italian President Giorgio Napolitano after the premier lost his parliamentary majority during a routine vote earlier Tuesday. In a statement, Napolitano's office said Berlusconi had agreed to step down once the economic reforms have passed parliament. A vote on the measures is planned for next week.

Wealthier European countries including Germany and France have already bailed out struggling Greece, Ireland and Portugal, and Greece will get another €100 billion ($138 billion) of debt relief as soon as it resolves its political crisis.

Senior government officials said Greece would get a new prime minister later Tuesday. They spoke on condition of anonymity because of the secrecy surrounding the second day of talks between Prime Minister George Papandreou and opposition leader Antonis Samaras. They hope to reach a power-sharing deal that will prevent Greece from going bankrupt.

Italy poses an even graver challenge: Europe can't afford to bail out its €1.9 trillion ($2.6 trillion) debt pile, and wants to see Italy live up to promises to rein in spending and improve lagging growth so it can pay it off itself. Few believe Berlusconi — sapped by scandal and economic bungling — has the political clout to get that done, and calls had increased for him to resign.

Among those urging that he step down was Berlusconi's main coalition ally, Northern League leader Umberto Bossi, who told reporters Tuesday: "We asked him to step aside, take a step to the side." Bossi is the volatile ally who brought down Berlusconi's first conservative government in 1994.

His comments came as he arrived for a much-watched vote that Berlusconi survived, but which laid bare the prime minister's lack of support in Parliament.

The vote, on a routine budget measure, won 308 votes of approval and no votes against in the lower house. But 321 deputies abstained from voting, most of them from the center-left opposition. If all 630 lawmakers had voted, Berlusconi would need a 316-seat majority to assure he was still in command.

Berlusconi scrutinized the vote tally handed him right after the vote, apparently trying to figure out who had abstained.

"This government does not have the majority!" thundered opposition leader Pierluigi Bersani, rising up in the chamber. "We all know that Italy is running the real risk in the next days to not have access to financial markets."

He was referring to Italy's borrowing rates, which have been soaring amid weeks of political uncertainty over Berlusconi's ability to oversee the adoption of austerity measures to fight Italy's growing debt burden.

Italian bond yields — the interest rates Italy would need to pay when it borrows money — reached their highest point since the country joined the euro in 1999 on increasing fears of default. The yields hit 6.73 percent, not far from the 7 percent levels that pushed Ireland, Portugal and Greece to seek bailouts.

Higher yields are signs of market fear of default and reluctance to lend, and they also make debt harder to repay in a vicious circle, since Italy needs to take out new loans to pay off the old ones.

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