Italy's Prodi resigns after losing Senate vote

By Stephen Brown and Robin Pomeroy

ROME (Reuters) - Italian Prime Minister Romano Prodi resigned on Thursday after his centre-left government lost a confidence vote in the Senate, prompting opposition leader Silvio Berlusconi to demand immediate elections.

"Now we must go to vote. We will say what we want to do in the first 100 days of our government," said conservative former prime minister Berlusconi, who has led Prodi in opinion polls.

But President Giorgio Napolitano may first appoint an interim government to reform a messy electoral system, which in 2006 landed Prodi with a tiny Senate majority and an unstable nine-party coalition ranging from Catholics to communists.

Analysts said the demise of the 61st government since World War Two should not hurt economic growth prospects, as Prodi had been too busy surviving politically to carry out deep reforms, but could threaten a recent improvement in public finances.

Many Italians hope for electoral reform to cure chronic instability, illustrated by the fact that Prodi's 20-month spell in power was the seventh longest government in post-war Italy.

"This isn't necessarily bad news, it all depends what comes after Prodi," said Unicredit MIB economist Marco Valli. "Markets don't like uncertainty but if what follows Prodi is a stronger government, then that could be positive."

Berlusconi's senators opened champagne to celebrate, earning a rebuke from Senate President Franco Marini who said: "Get rid of that bottle, we're not in a pub here." Rome taxi drivers who support him honked their horns and shouted: "We've done it!"

Prodi, 68, was undermined by his own allies, just as when his first spell in office was cut short in 1998. This time a small Catholic party's defection erased his tiny majority in the Senate and made a vote of no confidence almost inevitable.