- Berlusconi will reluctantly lend support to caretaker government led by Mario Monti, report says
- Monti, a former European commissioner, is the choice of investors and Italy's opposition parties
- Italy's 10-year bonds hit a euro-era high of more than 7.5% on Wednesday
Silvio Berlusconi, increasingly isolated within his party and counting his last days as Italy's prime minister, is expected to give up his push for early elections and lend his reluctant support to a caretaker government led by Mario Monti, former European commissioner.
Mr Berlusconi has made no official comment since insisting early on Wednesday that his resignation should be followed by snap elections, but newspapers on Thursday carried unsourced reports that he had decided under pressure from markets and his allies not to block Mr Monti -- the choice of investors, Italy's opposition parties and Giorgio Napolitano, head of state.
Even Il Giornale, the Milan daily that is part of the Berlusconi family media empire, recognised that the end-game was almost over. "It is not what Silvio Berlusconi was hoping for but the outgoing premier will not raise barriers to block such a solution (an emergency government)," wrote Alessandro Sallusti, editor.
Mr Berlusconi gave his commitment to the head of state on Tuesday night that he would resign once parliament had passed legislation on reforms demanded by international institutions. That could happen as soon as this weekend with politicians from Mr Berlusconi's People of Liberty party and the main opposition parties co-operating to pass the package as soon as possible.
The risk of Italy heading into months of paralysing uncertainty with elections that might produce no decisive outcome had panicked markets on Wednesday with yields on Italy's 10-year bonds hitting euro-era highs above 7.5 per cent.
The spread over German Bunds hit highs of 575 basis points on Wednesday before easing with the support of the European Central Bank. The spread early on Thursday was about 550bp, while the Milan stock exchange was clinging to small gains. The 10-year Italian bond yield eased to about 7.2 per cent on Thursday.
Mr Napolitano, 86, stepped in late on Wednesday in an effort to stop the slide in Italian bonds and stocks. He issued a forceful statement underlining Mr Berlusconi's commitment to resign and his own efforts to find a political consensus in parliament to back an emergency government that would stay in place until early 2013 to carry through reforms.
Mr Napolitano separately announced that he had nominated Mr Monti as senator for life, a move that commentators widely interpreted as a signal that the 68-year-old economics professor and president of Milan's Bocconi university was being lined up as the next prime minister. However, according to those involved in the process, it was also possible that Mr Monti would become finance minister in an interim government led by Giuliano Amato, a former centre-left prime minister.
Signs that leading members of the People of Liberty party would not follow Mr Berlusconi in pushing for early elections appear to have forced the prime minister to change tack. Il Giornale's editor described him as "under siege from his colonels imploring him not to send them home because for anyone, with the situation as it is, elections are a leap in the dark".
"Do it Quickly," implored Il Sole 24 Ore, Italy's leading business newspaper, in a rare banner headline above a commentary by Roberto Napoletano, editor, calling for an emergency government to save Italy from the crisis on debt markets.
If Mr Berlusconi does decide to support Mr Monti then his long-running alliance with the Milan-based Northern League appears over. Umberto Bossi, party leader, told reporters it would be "beautiful" to go into opposition in the event of a caretaker government.