Reports that Italian Prime Minister Silvio Berlusconi has agreed to resign in the next three months are denied by his office.
The Italian newspaper La Repubblica claimed Mr Berlusconi had told his coalition partner Umberto Bossi, leader of the Northern League, that he would stand down in December or January. But this was denied by the prime minister’s office.
La Repubblica said Mr Berlusconi’s departure was agreed as part of a deal between the prime minister’s Forza Italia party and the Northern League, ahead of a summit of EU leaders in Brussels today.
The two parties have been haggling over austerity cuts demanded by Germany and France, as Italy takes measures to cut its debts. Rome owes 1.9tr euros, equal to 120 per cent of its national output, and while Greece has been the EU’s major concern over recent months, the focus is also now on Italy.
Paola Subacchi, research director of international economics at the Chatham House think tank in London, told Channel 4 News the Berlusconi administration had failed to tackle Italy’s debts and it was now time for a “technical government” of experts to take over.
Italy’s debts are second only to Greece’s in the eurozone. EU leaders are today expected to agree to strengthen the 440bn euro bailout fund, which has already been used to support Ireland, Portugal and Greece.
As it stands, the fund would not be able to cope if Italy needs help. It is too small and Italy’s debts are too big. It is thought the fund will be more than doubled in size to 1tr euros.
On 23 October, at another European summit, German Chancellor Angela Merkel and French President Nicolas Sarkozy caused outrage in Italy when they exchanged smiles after being asked by journalists if Mr Berlusconi was doing enough to deal with the country’s debts. It was said that Ms Merkel may have been getting her own back on Mr Berlusconi for allegedly making nasty remarks about her appearance.
Italy' s politicians have failed and should be replaced by a "technical government" of experts who can guide the country through the debt crisis.
That is the view of Paola Subacchi, research director of international economics at the Chatham House think tank in London.
Ms Subacchi, who is Italian, told Channel 4 News: "It has been clear for a while that the Berlusconi government is unable to deliver the necessary reform to restore the confidence of the markets and put debts on a sustainable footing. Berlusconi should step down for the sake of the country and for the sake of Europe. The best-case scenario for Italy is a technical government, a government of national unity."
The "technical government" would be appointed by President Giorgio Napolitano and take firm action to tackle Italy's debts over a period of months before an election was called.
It would be made up of people with the qualifications needed to set the country on the right course; those with experience of policy and the workings of the EU and IMF - "people who understand what needs to be done, people not bound by electoral politics".
Ms Subacchi said: "The government has proved several times that it is unable to lead the country and this is the last straw. Italy needs a strategy for growth because it's under-performing and needs radical reform. Tax evasion needs to be reduced."
Although the concept of a "technical government" is unknown in Britain, it is more familiar to Italians. In 1994, in an echo of his current troubles with his Northern League coalition partners, Silvio Berlusconi was forced to step down as prime minister when the League withdrew its support.
His administration was replaced by a "technical government" headed by Lamberto Dini, who was appointed by President Oscar Luigi Scalfaro. Mr Dini had served as Mr Berlusconi's treasury minister and is a former central banker who used to work for the IMF.
Italy is the eurozone’s third biggest economy and Germany and France have demanded reforms as a condition for buying the country’s bonds. Being in the eye of the storm led to a fist fight in the Italian parliament today. Proceedings were suspended for several minutes after a fight broke out between members of the Northern League and deputies from one of the opposition parties.
“There is a climate of violence and intolerance,” said Amedeo Ciccanti from the centrist UDC party. “We need to calm down because Italians are more irritated than us about this.”
There is a climate of violence and intolerance. Amedeo Ciccanti, UDC party
In Brussels today, it is unclear if the austerity package Mr Berlusconi and the Northern League have agreed – an increase in the state pension age from 65 to 67 – will be enough to appease other eurozone countries and the markets.
The prime minister also has some way to go in convincing some of his own countrymen that he is taking action that is tough enough. “Now is the time to act and we need to act, quickly and well,” said Giuseppe Mussari, head of Italy’s banking association.
There are reports that a 14-page letter Mr Berlusconi has taken with him pledges to balance the budget by 2013. The incoming head of the European Central Bank, the Italian Mario Draghi, said the reforms outlined in the letter had to be implemented quickly because the situation in his home country had become “confused and dramatic”.
Mr Berlusconi is Italy’s longest-serving post-war prime minister, but analysts say they do not expect him to to continue in office beyond January. He has served three terms and is rarely out of the public eye. A media mogul, he is one of the wealthiest men in Italy and has been accused of tax fraud and embezzlement, but has always denied this.
He is currently on trial charged with paying for sex with an under-age prostitute, Karima ‘Ruby’ El Mahroug. They both deny the charge.