Market mayhem as Berlusconi rules out election run

(ROME) - Italian borrowing rates hit danger levels on Wednesday amid uncertainty after Prime Minister Silvio Berlusconi said he would resign, but only after parliament has adopted key economic reforms.

Ten-year bond yields flew over 7.0-percent to heights that could make it impossible for Rome to keep financing its 1.9-trillion euro ($2.6 trillion) debt, as Europe warned Italy needed "extra measures" to meet its targets.

"I won't run for office" in any future election, Berlusconi told La Stampa, effectively announcing the end of a political career spanning two decades after a parliamentary revolt on Tuesday deprived his coalition of a majority.

A Senate committee was set to begin discussions on the proposed measures on Wednesday but the precise timetable for their approval is still unclear.

Final approval of the package was expected later this month but it appears increasingly likely that the schedule will be speeded up to avoid a debt blow-up.

President Giorgio Napolitano, who will lead efforts to form a new government or call early elections after the 75-year-old Berlusconi's resignation, voiced concern about the situation in the eurozone's third largest economy.

"We have to regain credibility and trust as a country. Above all today we have to get out of a very dangerous crunch on our bonds," he said.

"A lot of closures and old taboos need to fall," he said, in comments seen as favouring a national unity government to steer through the crisis.

Berlusconi has said he would prefer early elections in February.

Italy's stock market initially opened higher but then quickly plunged.

Shares in Berlusconi's Mediaset business empire helped drag down the market and were down around 10 percent.

Investors have voiced fears that Italy could fail to implement ambitious reforms and become the next victim of the debt crisis gripping Europe in the wake of Greece, Ireland and Portugal which have been forced to seek bailouts.

German Chancellor Angela Merkel added to the pressure, saying Europe needed "structural changes" and not just "declarations of intent", in comments widely seen as referring to broken promises by debt-mired states like Italy.

The uncertainty in Italy as well as continued political wrangling in Greece also helped drag down the value of the euro against the dollar on Wednesday.

Among the options post-Berlusconi are an expansion of the current centre-right coalition, the formation of a national unity government or, failing other options, the dissolution of parliament and early elections.

"Now is Alfano's moment. He will be our candidate for premier," Berlusconi said, referring to Angelino Alfano, a former justice minister who became the leader of Berlusconi's ruling People of Freedom (PDL) party this year.

Other possible candidates to replace Berlusconi identified by the press in recent days are former EU commissioner Mario Monti, former prime minister Giuliano Amato and Berlusconi cabinet secretary Gianni Letta.

Top-selling Italian daily Corriere della Sera said Berlusconi's "slow-motion" demise "could introduce a degree of temporary ambiguity that would be destructive for a country exposed to months of financial speculation."

Il Messaggero said: "He should have resigned immediately."

European Union and European Central Bank officials also arrived in Rome as part of a special EU-IMF surveillance mechanism agreed last week, as the European Commission urged Italy to make extra effort to cut its debt.

"As we estimate that in the current economic context the planned fiscal strategy dopes not ensure the achievement of a balanced budget in 2013, additional measures will be needed," read a message from the EU.

"Are contingency measures being prepared already now and, if so, what kind of measures are they? Would they take the form of further expenditure restraint, based on the results of a thorough spending review?" it added.

Berlusconi had promised his fellow eurozone leaders that he would overhaul Italy's pensions system and accelerate sales of state assets, but the reforms have stalled to the intense frustration of Germany and others.

The larger-than-life premier is currently a defendant in three trials for bribery, tax fraud, abuse of power and paying for sex with a 17-year-old girl.

Asked what he would do in the future in the La Stampa interview, he said he could "help out in election campaigns, something I've always been good at."

Or he added: "Maybe I will go back to being president of AC Milan."