* President alarmed by Italian bond yields
* Says no doubt about Berlusconi resignation
* Says new government or election called quickly
By Barry Moody
ROME, Nov 9 Italy's president stepped in to try
to calm markets on Wednesday after the country's borrowing costs
raced to catastrophic levels, saying urgent action would be
taken to end a political crisis.
Head of state Giorgio Napolitano, expressing alarm about a
collapse in market confidence, said there was no doubt about the
resignation of Prime Minister Silvio Berlusconi once economic
reforms were implemented by parliament within days.
When a financial stability law incorporating the reforms
promised to European leaders was approved, Napolitano said he
would rapidly hold consultations to end the crisis.
"Therefore, within a short time either a new government will
be formed ... or parliament will be dissolved to immediately
begin an electoral campaign," Napolitano said.
The president, who has played an increasingly active role in
the crisis, said he had been obliged to issue his statement
because of the pressure on government bonds, whose yields shot
above a "red line" of 7 percent on Wednesday.
In a possible sign that he was preparing the way for a
so-called "technical government" led by an independent outsider,
Napolitano named former European Commissioner Mario Monti as
senator for life.
Monti has been widely seen as the most likely leader of a
government of technocrats to implement vital economic reforms
and steer Italy through to new elections in 2013.
Markets have been clamouring for weeks for Berlusconi to
depart because of his failure to push through painful austerity
measures and disarray from a rebellion inside his own party.
But the 75-year-old media tycoon's pledge on Tuesday night
to step down once vital economic reforms are passed instead
accelerated the crisis at the centre of the euro zone, with
markets unnerved by the unorthodox postponement of his
resignation and fears of extended political uncertainty.
Analysts said Italy was now in territory where Greece,
Ireland and Portugal were forced to seek bailouts.
Berlusconi's insistence that the only way out was elections
early next year, and deep political disagreement about the next
move, only worsened the uncertainty, although two factions in
his own PDL party said on Wednesday they opposed early polls.
In another indication of how serious the crisis of
confidence is, spreads between Italian government paper and
German bunds rose over another watershed of 500 basis points,
reaching a record above 560.
FORCE THE PACE
An election would put Italy in limbo for several months and
there was no sign of agreement on the urgent formation of a
transitional government that could calm markets, but Napolitano
clearly intends to force the pace.
Other politicians on Wednesday finally seemed to realise the
urgent need to restore market confidence. A parliamentary source
said lower house speaker Gianfranco Fini intended to have the
financial stability law approved by Sunday.
"Italy must regain credibility and confidence as a country
for us first of all to get out from a very dangerous squeeze on
financial markets," said Napolitano, an 86-year-old former
communist who has gone to the limits of his traditional powers
to combat the crisis.
Italy's centre-left opposition wants the urgent formation of
a national unity government but its main leader, Pier Luigi
Bersani, said this was unlikely because of resistance from the
centre right. He believed elections were likely.
Berlusconi and his closest allies say a government of
national unity, including the left, or of technocrats, would be
an undemocratic "coup" against the last election in 2008.
But a significant number of PDL deputies appear to oppose
They fear the centre-left victory predicted by opinion polls
after Berlusconi's popularity slumped because of a string of sex
and legal scandals, political errors and above all the pressure
from foreign markets.
Analysts say one consequence of the crisis could be the
collapse of Berlusconi's PDL as centrist parties try to woo its
Berlusconi said that PDL party secretary and former justice
minister Angelino Alfano, long his anointed successor, would be
the centre right's candidate for prime minister.
"I will resign as soon as the (budget) law is passed and,
since I believe there is no other majority possible, I see
elections being held at the beginning of February and I will not
be a candidate in them," he told La Stampa newspaper.
Italy is in the eye of the euro zone debt storm because, as
the region's third largest economy, it is viewed as too big to
bail out. Its crisis therefore poses a real threat to the
survival of the single currency.
Despite the new sense of urgency fuelled by Wednesday's
debacle in the markets, there are still wide disagreements both
about the form of a new government and on budget and structural
reforms to bring down Italy's huge debt and revive its
One small opposition group, the Italy of Values party, said
on Wednesday it would vote against the reforms.
EU inspectors were in Rome on Wednesday to begin a
monitoring mission aimed at ensuring economic reforms are
carried out as part of an agreement reached at a G20 summit last
week. Most of the reforms are incorporated in the budget
measures to be voted on by parliament.
The European Commission sent a letter to Italy this week
requesting more details on the reforms and saying additional
measures would be needed to meet the target of balancing the
budget by 2013.