With markets tumbling around the globe, Italy’s President promised emphatically that Silvio Berlusconi will step down soon as premier and lavished honours on a leading economist, who instantly became Mr. Berlusconi’s presumed successor.
Across the Ionian Sea, the debt crisis in Greece deepened Wednesday with the breakdown of talks aimed at creating a power-sharing government to prevent the country from slipping into bankruptcy. The collapse came just minutes after the prime minister delivered a farewell speech to the nation.
The chaos reverberated around the world, and investors pulled money out of Europe. The Dow Jones industrial average plunged more than 3 percent, the euro slipped 2 percent against the dollar, and Italy’s key borrowing rate spiked at a dizzying high of 7.4 percent.
Investors fear Italy might follow Portugal and Greece into begging for a bailout from its partners in the euro. But Italy’s 1.9 trillion ($2.6 trillion) debt is far too great for Europe to cover.
On Tuesday, Berlusconi announced he would step down after Parliament passes a series of economic reforms to stave off financial ruin in Italy. But there was growing fear he doesn’t have the will or the clout to push the measures through. And some worry the wily premier will try to stay in power.
On Wednesday, with the markets in turmoil, Italian President Giorgio Napolitano in effect put Berlusconi on notice that he and the world’s markets are expecting Berlusconi to keep his word and leave soon.
Parliamentary whips feverishly worked out a timetable to ensure that the Italian Senate would give final approval Friday to the package of measures, aimed at stimulating growth and reining in debt, according to state TV. It said the lower house would do the same on Saturday, meaning Berlusconi could be out before the weekend is over.
Berlusconi’s top political aide, Angelino Alfano, confirmed the scenario, saying on a TV talk show Wednesday night that Mr. Berlusconi would resign sometime between Saturday and Monday, as soon as the economic reform law is passed.
In a surprise move, Napolitano named Mario Monti, who runs the prestigious Bocconi University in Milan, as senator—for—life, an honour given to notable figures that bestows voting privileges in the upper house of Parliament.
Mr. Monti was already being eagerly touted by market analysts, political commentators and some Italian politicians as having the international respectability and economic know—how to guide the country through the financial storm. His new title appeared intended to move him into position to try to form a post—Berlusconi government.
The elegant, gray—haired Mr. Monti, 68, made his reputation as a strong-willed economist when, as the European Union’s competition commissioner, he blocked General Electric’s takeover of Honeywell.
Senate President Renato Schifani told Mr. Monti in a congratulatory note that he was “sure that your deep experience will be of useful help to all of us,” the Italian news agency LaPresse reported.
In Greece, fresh political squabbling threatened what had appeared to be an emerging deal to end a week of political chaos. Tortuous power—sharing talks among Greece’s main parties broke down, with political leaders failing to pick a new prime minister to lead an interim government.
Outgoing Prime Minister George Papandreou addressed the nation on TV, saying Greece’s political parties are joining forces to save the country from bankruptcy.
“I want to wish every success to the new prime minister and the new government,” he said, without naming his successor. “I will stand at their side and will back this national effort to the utmost of my ability.”
But less than an hour later, one party chief stormed out of the talks, complaining of “trickery.” And Mr. Papandreou’s main rival complained that the prime minister had made no concrete proposal.
The president’s office scheduled another meeting for Thursday morning, but a deal seemed as far away as ever.
In Italy, industrialists soured on Mr. Berlusconi after he failed to jump-start the economy. Italy’s economy is hampered by high wage costs, low productivity, fat government payrolls, excessive taxes and bureaucratic obstacles.
The reform measures being voted on in Parliament are relatively modest. They include a plan to sell government assets, and tax breaks to reduce youth unemployment and to get more women into the work force. The legislation would also allow stores to stay open on Sundays and open up closed professions. Berlusconi also pledged to raise the retirement age to 67 for all workers.
Investors fear Berlusconi will try to get out of his pledge to resign.
“Berlusconi is the supreme political manoeuvre,” said Jan Randolph, head of sovereign risk analysis at IHS Global Insight. “No one will believe he has resigned until, yes, he has done so. As simple as that.”