Berlusconi wins, but loses majority
Rome - Italian Prime Minister Silvio Berlusconi's future hung by a thread on Tuesday after he failed to garner an absolute majority in parliament and borrowing rates hit a record high.
The embattled 75-year-old won a vote on Italy's 2010 public accounts - a precondition for the approval of any future budgets - by 308 votes in favour with one abstention after the opposition refused to vote.
The result was below the absolute majority of 316 seats required for a stable government, leaving the centre-right coalition in an extremely weak position.
"The government no longer has a majority in this chamber," Pier Luigi Bersani, leader of the main opposition Democratic Party, said after the vote.
Addressing Berlusconi, he added: "Hand in your resignation".
The premier's main coalition partner had called for his resignation ahead of the vote, with a nervous Europe watching on as political consultations also continued in crisis-hit Greece over the formation of a new cabinet.
"We have asked him to step aside," Northern League party leader Umberto Bossi, a long-term ally of Berlusconi from the early 1990s, told reporters.
"We're in the eye of the global storm... Italy needs international credibility," business daily Il Sole 24 Ore said in an editorial.
Global markets were focused on the political crisis playing out in Italy, the third-biggest economy in the eurozone, while European Union ministers held talks in Brussels in which they voiced concern about the situation.
Too big to bail out
In Brussels, Austria warned Italy was too big to bail out, saying it could not rely on "help from outside" because of the size of its economy.
Britain and Sweden meanwhile led calls by non-euro EU members for eurozone countries to move fast with a convincing firewall to stop crisis contagion.
Finnish Prime Minister Jyrki Katainen said Italy should stop making "empty promises" and Europe did not have sufficient resources to bail it out.
The yield on Italian 10-year sovereign bonds rose to 6.73% - its highest since the birth of the eurozone and a level that analysts believe is unsustainable in the longer-term and may even force Italy to seek a bailout.
European stock markets were up however, with Milan rising 2.40%.
Finance Minister Giulio Tremonti, a key advocate of budget discipline who has been in a long-running feud with Berlusconi, cut short a visit to Brussels for a meeting of EU finance ministers and rushed back to Rome.
The combination of Italy's low growth rate and €1.9 trillion debt has fanned investor alarm that it could be the next victim of Europe's debt crisis even though its deficit is relatively low.
The vote debated by Italian lawmakers on Tuesday - the approval of Italy's past public accounts for 2010 - is a usually procedural motion that took on extra significance in the current political and financial turmoil.
A defiant Berlusconi on Monday dismissed talk of his possible resignation as "baseless" and warned against calls for the creation of a unity government to fight the crisis, saying it would be "the opposite of democracy".
Although the current political picture in Italy is far from clear, the idea that Berlusconi - a dominant feature in Italian politics for almost two decades - could step down is no longer taboo, including among his supporters.
Among the possible political scenarios mooted in recent days are early elections, a national unity government, a government led by technocrats and a widening of the current coalition to include the centrist UDC party.
Berlusconi's popularity rating has slumped to a record low of 22% amid the current crisis and he is currently a defendant in three trials for bribery, tax fraud, abuse of power and paying for sex with a 17-year-old girl.
Italy has been on the ropes since last week when the government agreed to special surveillance from the International Monetary Fund and the European Union to ensure it was meeting crucial targets to cut its massive debt.
The first EU monitoring experts are expected in Italy on Wednesday.
Concerns that Italy is next in the line of fire in the European debt crisis after the turmoil in Greece sent the euro lower against other major currencies in Asia but it rose later in Europe despite the concern over Italy and Greece.
Greece's two main parties were tantalisingly close to a breakthrough on naming a new government and outgoing Prime Minister George Papandreou demanded the resignation of his ministers on Tuesday to ease the process.
Khoon Goh, strategist at ANZ bank in Wellington told Dow Jones Newswires: "Greece may still be hogging the headlines at present, but we could be moving from a Greek crisis towards an Italian crisis."