Berlusconi definitely leaving, but it won't save Italy

IT WAS assumed that if Silvio Berlusconi agreed to stand down, the markets would respond favourably. However, although the Italian prime minister has agreed to go - and today he made it clear that he would not stand as a candidate in any new election - it seems investors still believe that Italy will need to be rescued by Europe.

Berlusconi told President Napolitano yesterday that he would stand down once the reforms demanded by eurozone leaders were enacted by parliament. But the end of this month is seen as the earliest the legislation could be passed.

The conditions of Berlusconi's resignation had led to speculation overnight that they are a ploy from the great Italian political survivor to cling on to power by forcing early elections.

However, the PM said today: "I will resign as soon as the 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."

The Italian daily Corriere Della Sera reported that before Berlusconi drove to the president's palace yesterday, he was seen making notes on a sheet of paper which referred to the defectors from own party as "traitors" and outlined his options: "Do I take the confidence vote? Leave It? Technical Government? Re-election?"

Later in the evening, Berlusconi suggested ambiguously to Canale 5, one of his own television stations: "We have to show the markets that we are serious. I think that is the important thing we should worry about, then we can worry about who leads the government. The important thing is to work for the good of Italy."

However, the movements of the bond markets this morning suggest investors now think Italy is a hopeless case - with or without the machinations of Berlusconi. The rate of interest the Italian government pays on ten-year loans has breached the seven per cent mark, and had reached eight by lunchtime, a level at which, according to the BBC's business editor Robert Peston, a bailout is "almost inevitable". ·