# Official: Italy will adopt austerity measures

Italian Prime Minister Silvio Berlusconi faced heavy pressure to resign.

ROME (CNN) -- Italian President Giorgio Napolitano said Wednesday that his country in coming days will adopt a series of austerity measures promised to the European Union, as officials try to allay investor fears and head off a eurozone debt crisis.

Silvio Berlusconi, Italy's embattled premier, will resign shortly afterward, Napolitano's office said in a written statement.

  * Print
  * Comment



Either a new government will be formed, the statement said, or elections will be called soon after the long-awaited reforms are approved.

The head of the International Monetary Fund, meanwhile, painted a stark picture of the challenges facing the world's economic stability as attention focused on Italy.

"The global economy has entered a dangerous and uncertain phase," Christine Lagarde said in remarks prepared for delivery at the International Finance Forum in Beijing.

"If we do not act, and act together, we could enter a downward spiral of uncertainty, financial instability and a collapse in global demand. Ultimately, we could face a lost decade of low growth and high unemployment," she said.

Although she made no specific mention of Italy in the prepared remarks, Lagarde spoke as even more bad news came from Rome.

Greek prime minister set to resign

The yield on 10-year Italian government bonds rose above 7%, the level at which other European countries -- including Greece, Portugal and Ireland -- have sought international bailouts.

The bond yields -- which represent the level of risk of lending Italy money -- surged as high as 7.48%, marking its highest since the euro was launched in 1999.

Ireland's actually rose above 8%, while Portugal's breached 9%. And yields for Greek bonds touched the 10% mark.

Italy has been under pressure from investors and its trading partners to get its fiscal house in order. The nation has debts equal to about 120% of its overall output and an economy that has been stagnant for years.

On Tuesday, Berlusconi won a parliamentary vote approving a new budget that includes austerity measures sought by international lenders, but lost his majority in parliament. Berlusconi later said he would resign, and on Wednesday his spokesman Paolo Bonaiuti said he would not run in the country's next parliamentary elections.

International concern has focused increasingly on Italy, the third-largest economy in the eurozone, in the past few weeks, as analysts have worried that the financial crisis centered in Greece could spread.

At a meeting Wednesday of the European Parliament in Belgium, British Deputy Prime Minister Nick Clegg described the rapid pace at which the bad news has been piling on.

"I cannot remember a time when events in Europe moved so swiftly. Many hoped that, by now, we would no longer be lurching from one headline to the next. But the focus has shifted from Athens to Rome, and it is clear that much still needs to be done to ensure stability in the eurozone," he said.

"Today I do not intend to provide further commentary on these specific events. For one thing, it would probably be out of date by the time I sat down," he added.

"Europe is suffering from a crisis of competitiveness," Clegg said, issuing a challenge to EU nations. "The choice is stark: Reform or wither. Reform now or regret it forever."

For now, analysts are keeping their focus largely on Italy. Although the country is solvent, it holds a huge debt pile, and investors fear it may not be able to sustain that level of borrowing. Italy is the world's eighth-largest economy. A meltdown would send shock waves through the global economy.

Though the precise timing of Berlusconi's resignation is unclear, news of his imminent departure signaled the end of an era in Italian politics.

The 75-year-old business tycoon has been a dominant force since forming his Forza Italia party in 1994.

He has weathered many crises, including sex scandals and corruption trials, in his three terms in office. But the loss of his parliamentary majority -- and with it his ability to command the government -- was a blow from which Berlusconi could not recover.

He had come under enormous pressure to resign in recent days, with what should have been a routine vote on the 2010 budget seen as a test of whether he still had the confidence of the government.

A senate budget commission is set to meet over the annual plan and is expected to vote on the measure next week.

Berlusconi told Italian newspaper La Stampa that his decision gives him freedom.

"I will not put myself up for elections," he told the newspaper. "Actually, I feel liberated. Now it is time for Alfano. He will be our premier candidate. He is extremely good, much better than one can expect, and his leadership has been accepted by all."

Berlusconi was referring to former Justice Minister Angelino Alfano, who has been known as Berlusconi's hand-picked successor.

But there will be others vying for Berlusconi's position after he leaves.

Names being floated include political figures such as Gianni Letta, Berlusconi's chief of staff, and Mario Monti, a former commissioner with the European Union, as well as business figures such as Luca Cordero di Montezemolo, chairman of Ferrari, and Alessandro Profumo, former CEO of Italy's largest bank, UniCredit.

Berlusconi's announcements this week follow the passage of a key budget vote in the lower house that fell eight votes short of a parliamentary majority.

It was not clear when the Senate will vote on the economic measures. 

_CNN's James Partington, Hada Messia, Josh Levs, Pete Wilkinson, Nick Thompson, Laura Smith-Spark and Nina Dos Santos contributed to this report._