Italy's head of state began talks today to appoint an emergency government to succeed outgoing Prime Minister Silvio Berlusconi and handle a crisis that has brought the euro zone's third largest economy to the brink of financial disaster.
Just a few hours after central Rome was still echoing with street festivities over Mr Berlusconi's departure, President Giorgio Napolitano met with the leaders of two houses of parliament.
Mr Napolitano is expected to ask former European Commissioner Mario Monti to try to form a government of technocrats in time for the opening of markets on Monday.
The centre-right party of Mr Berlusconi said it was ready to give its support to a new technocrat government led by Mr Monti.
"We have made clear our availability and consent to giving the mandate to Professor Monti," PDL secretary Angelino Alfano said after meeting President Giorgio Napolitano.
He said the party's agreement was conditional on the make-up and policy programme to be announced by the new government.
Mr Monti's mandate should be based on reform commitments given by Mr Berlusconi to European partners and should exclude people who had acted against his centre-right government,Mr Alfano said.
However Mr Monti will have many problems in passing economic reforms, a senior member of the outgoing centre-right coalition said today.
Outgoing Interior Minister Roberto Maroni, a senior figure in the devolutionist Northern League, confirmed in a television interview that the party opposed the technocrat government led by Monti which is expected to be formed later today.
"The decisions which Monti will take must pass in parliament and I think that with such a heterogeneous majority he will have many problems. I believe this solution will lead to many problems," Mr Maroni said.
The new government is expected to be backed by the main centre-left opposition party, centrists and part of Silvio Berlusconi's PDL, which has ruled in partnership with the League since 2008.
Mr Maroni said a government based on such diverse forces would not be able to make rapid and coherent decisions.
All eyes are now on the reation of the markets when they open tomorrow morning.
German Chancellor Angela Merkel welcomed signs of an end to the weeks of uncertainty, saying the approval of a reform package in parliament yesterday was "heartening".
"I hope that confidence in Italy is restored, which is crucial for a return to calm throughout the euro zone," she said ahead of a party conference in Leipzig.
Mr Berlusconi faced a chorus of jeers and insults as he was driven to the Quirinale Palace to hand his resignation to Mr Napolitano.
Crowds built up steadily after parliament passed a new budget law late yesterday afternoon, clearing the way for Mr Berlusconi to fulfill a pledge to resign after he failed to secure a majority in a crucial vote on Tuesday.
Following weeks of political uncertainty and growing calls from international partners for action to control its towering public debt, Italy's borrowing costs soared to unmanageable levels last week, threatening a Europe-wide financial meltdown.
Mr Monti, named as Senator for Life last week, met European Central Bank President Mario Draghi and politicians from various parties yesterday as preparations for a transition began even before Mr Berlusconi stepped down.
He has not so far been named officially but he has received the backing of the main opposition groups and the conditional acceptance of Mr Berlusconi's centre-right PDL after objections from several factions in the party were overcome.
"In the end, a sense of responsibility prevailed," said Mario Baccini, a PDL lawmaker. He said the PDL would support a Monti government as long as it stuck to reforms agreed by the outgoing government with the European Union.
With the next elections not due until 2013, a government of technocrats could have about 18 months to pass painful economic reforms but will need to secure the backing of a majority in parliament and could fall before then.
Italy came close to a full scale financial emergency this week after yields on 10-year bonds soared over 7.6 per cent, levels which forced Ireland, Portugal and Greece to seek an international bailout.
With public debt of more than 120 per cent of gross domestic product and more than a decade of anaemic economic growth behind it, Italy is at the heart of the euro zone debt crisis and would be too big for the bloc to bail out.
Financial markets have backed a Monti government and as prospects of Mr Berlusconi going became firmer last week, yields dropped below the critical 7 per cent level.
It now falls to Mr Berlusconi's successor to try to reassure markets that a new government will be able to control spending and pass the kind of reforms to pensions, public service and labour markets that his government was unable to implement.
A technical government under Mr Monti would avoid the need for a long and divisive election campaign, unsettling markets further, but its future will depend on maintaining the support of parliament.
A tough negotiator with a record of taking on powerful corporate interests as European Competition Commissioner, Mr Monti will have to navigate the treacherous waters of Italian politics to survive.
On the left, likely reforms such as an increase in the pension age or easier hiring and firing rules could prompt strong opposition from unions once the elation of Mr Berlusconi's departure has passed.
But the threat could be at least as great from the centre-right with Mr Berlusconi's old Northern League coalition partners declaring they will oppose a Monti-led government and many in the PDL also harbouring deep reservations.
In a potentially ominous sign of the dangers that may face a Monti government, Italian news agencies reported that Mr Berlusconi had told party colleagues that they would control the future of a new administration.
"We can pull the plug whenever we want," he was quoted as telling party allies.
Reuters