Italy wakes up to life after Berlusconi

Silvio Berlusconi, the Italian Prime Minister, bowed to the inevitable last night and said he was quitting, bringing the curtain down on a tumultuous, two-decade long political career that has seen him hold high office three times.

His latest and most damaging humiliation in parliament, and calls by an important political ally for him to quit, proved too much yesterday even for the 75-year-old media tycoon, who just hours earlier had vowed to fight on.

A furious Mr Berlusconi spoke bitterly of betrayal as he stormed out of parliament yesterday afternoon, apparently reluctant to stand down. Eight MPs who refused to support him were labelled "traitors" in a scribbled note captured on camera. But, within three hours, the head of state, President Giorgio Napolitano, announced Mr Berlusconi would indeed go after he had adopted key economic reforms demanded by the European Union.

"Once this commitment has been carried out, the Prime Minister will submit his resignation," said the statement from President's office, which came after a 45-minute meeting between Mr Berlusconi and Mr Napolitano. No clear timescale was given, though Italian press reports said he was likely to step down by mid-November.

The statement added Mr Berlusconi had shown "his awareness of the implications of the results of today's vote" as well as "concern for the urgent need to give prompt answers to the expectations of European partners". In a statement an hour later, Mr Berlusconi confirmed his departure: "It appears the government no longer has a clear majority. Therefore, we have to take stock of what's happening in Italy and what's going on in the markets." He said it was for President Napolitano to decide if he wanted to form a stop-gap government after the reforms had been passed, but added that he saw "only the possibility of new elections".

The Prime Minister's mawkish side emerged later in evening when he lamented the actions of MPs who had rebelled. "I felt not only surprise but also sadness, because the people who didn't vote for me were people with whom I've been close for years, from the start of Forza Italia [his first party]."

Most observers, however, had the impression of rats fleeing a sinking ship. Mr Berlusconi's resignation had seemed inevitable after it became clear he had no hope of carrying through the vital measures demanded by Europe and the markets following a financial house-keeping vote in which he finished eight short of the absolute majority of 316.

The opposition abstained to ensure the vital vote on last year's budget passed, while simultaneously exposing Mr Berlusconi's inability to garner a majority. Business leaders and opposition figures had warned that, by stringing out his departure, Mr Berlusconi was worsening the already critical situation.

Soon after the vote, the Democratic Party leader, Pier Luigi Bersani, had called on Mr Berlusconi to go, saying Italy ran a real risk of losing access to financial markets after yields on government bonds had approached the red line of 7 per cent. Bond yields over this level proved to be the trigger point that forced Greece, Portugal and Ireland into accepting bailouts.

Earlier in the day Mr Berlusconi's key coalition ally, Umberto Bossi, head of the Northern League, had underlined the hopelessness of the media magnate's position by adding his voice to the chorus of calls on him to quit.

As rumours swirled in Rome, the EU's Economic Affairs Commissioner Olli Rehn indicated the level of international concern at Italy's political uncertainty. "The financial situation of Italy is very worrying," he said.

Italy's feeble growth prospects and €1.9trn debt mountain have left it wide open to market attacks as investors fear it may be the next victim of Europe's debt crisis. Global equities and the euro resumed gains yesterday evening after news of Mr Berlusconi's resignation, with markets hoping the mogul's exit could ease the passage of unpopular austerity measures needed to reduce debt.

Last night opposition figures, led by Mr Bersani, welcomed Mr Berlusconi's decision to quit. He said his Democratic Party would "stick to a rigorous examination" of the austerity measures which Mr Berlusconi has pledged to pass before leaving office. They will be presented to parliament as an amendment to an existing bill set to be voted on next week by the Senate.

Mr Bersani said the opposition would see whether the measures could be "quickly approved" even if there were some contentious aspects.

But many opposition MPs and some moderate centre-right figures said last night the Prime Minister ought to have resigned weeks ago. Mr Berlusconi's reluctance to quit was fuelled by pride – but not only that. Observers noted that one of the longest meetings he held in the past 48 hours has been with his oldest children, Marina and Piersilvio, key lieutenants in his business empire, and Fedele Confalonieri, chairman of his Mediaset TV company. Mr Berlusconi was widely believed to have entered Italian politics back in 1993 as Italy's richest man to save his media empire from what he saw as a left-wing threat to dismantle it.

"This is a good example of Berlusconi's priorities. The euro is at risk through Italian inaction, but the Italian Prime Minister is looking after family interests," said James Walston, politics professor at the American University in Rome.

Significantly, Mr Berlusconi's lawyer Niccolo Ghedini has also met him, underlying the tycoon's fears that once out of office he will be more vulnerable to prosecutors who attempting to nail him on charges of corruption, tax evasion and sexual impropriety.

Greek stalemate power deal falters

Greece's new power-sharing government stalled before it had started yesterday as the two main parties struggled to agree to written guarantees demanded by the EU in return for loans needed to avoid bankruptcy.

Lucas Papademos, the former central banker tipped to head the coalition, was left waiting in the wings as the feuding continued last night. It was not clear whether he would accept the job and the "100 days" government meant to rescue Greece was in danger of failing inside of three days.

"It is essential that the entire political class is now restoring the confidence that had been lost in the Greek commitment to the EU/IMF programme," the EU Commissioner, Olli Rehn, said.

In black and white, a Prime Minister's parting thoughts

Like several politicians before him, Silvio Berlusconi was caught out by a powerful camera lens and carelessly placed notes yesterday.

An eagle-eyed photographer snapped a shot Mr Berlusconi's notes outlining a number of options about his future. Mr Berlusconi, who had already been told to go earlier in the day by his coalition partners, walked into the chamber clutching a note with his various options scribbled down, according to Corriere della Sera newspaper.

"A confidence vote? I quit? A technical government? Re-election?" Each option was followed by a list of pros and cons.

And opponents within his own party would have been relieved at his decision to quit after another photograph showed him carrying a list of "traitors" who had told him they wouldn't back him in the budget vote.