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Berlusconi Loses His Majority In The Italian Government; Expected To Resign

Aired November 8, 2011 - 14:00:00   ET


BECKY ANDERSON, CNN INTERNATIONAL ANCHOR: A prime minister in crisis. Berlusconi wins a crucial vote, but looses his majority and the power to get anything done. He says he will resign, but not tonight.

MAX FOSTER, CNN INTERNATIONAL ANCHOR: In Greece, hopes of an immediate deal to end the crisis hits a wall. Leaders struggle to decide who will replace Papandreou.

ANDERSON: Live from Rome I'm Becky Anderson.

FOSTER: I'm Max Foster in London. This is QUEST MEANS BUSINESS.

ANDERSON: Well, tonight, Italy's government and its finances are in crisis. Silvio Berlusconi's government has won a crucial vote but has lost its majority and leaves the parliamentary system, and indeed, the country's finances in tatters. Tonight, an awful lot of pressure on this prime minister; few than half the lawmakers in a vote earlier on today, in fact, cast their vote to ratify what are the public accounts.

And the public accounts in an awful mess here in Italy at the moment. It is a clear sign that the prime minister is losing friends and losing friends rapidly. Behind the political turmoil lies an even more alarming problem driven partly by wider concerns over Greece's future. Italian 10- year bond yields spiked to an unaffordable record high earlier on today. We are going to be taking a closer look at that in just a moment.

But back to the politics, I'm joined by our Senior International Correspondent Matthew Chance, who has been on this story for the past week or so.

Berlusconi has just left the presidential office after winning a vote, but loosing his majority and loosing an awful lot of friends. What happened tonight?

MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, obviously, Silvio Berlusconi went to the presidential palace this evening to discuss the future of the Italian government. What happened in the parliament earlier today, is that he managed to get through the finances for last year.

It was a routine vote but so much attention had been attached to it, because it was an opportunity for Berlusconi to demonstrate that he still had a parliamentary majority. He was not able to do that. He got $308 votes, which was enough to pass the actual measures. Important for the country, so the government can keep functioning, but you need 316 votes for there to be a majority in parliament. That did not happen.

Obviously, the pressure is, then, on him enormously to step aside. There has been a lot of talk about him doing that. He was always saying he was resisting it. He said he could prove a majority. Clearly that has not been the case. So he has gone to the president, he has had discussions about what comes next, and he's reached his decision that he is going to step aside, but only after the next budget, the 2011 budget, has been approved by the parliament. And that is not long. That could be as early as the end of this week, or possibly beginning of next week. So, you know, Italy is on the cusp of a, a kind of post Silvio Berlusconi era.

ANDERSON: Interesting stuff. It is quite a confusing system, here at the moment. So as things stand at present, let me just delineate this. Silvio Berlusconi remains prime minister of Italy today. But once the vote on the public finances go through, and that will be, of course, through the senate, then he will step aside, for whom? At this point do we know?

CHANCE: We don't. I mean, we don't know, yet, whether there is going to be a sort of technocratic government that is going to be appointed. I'm sure this detail will come out in the next hour or so, actually. But we don't know whether there is going to be a sort of government of national unity that is going to be appointed to push through what will be very difficult measures in these austere economic times. Or whether there is going to be some kind of general election staged in Italy. That was Silvio Berlusconi's preferred option. He has been very reluctant to hand over power to an opposition figure, for instance. And allow them to try and command a majority in the Italian parliament.

And so, I think we have to wait to see what the president decides, what form of government Italy is going to adopt, before we start discussing, you know, who is possibly going to come next.

ANDERSON: Sure. All right. That vote could possibly come, of course, as early as tonight. One assumes we will see it in the Senate tomorrow. That is certainly what I have been told in the last 10 minutes or so.

Thank you, Matt.

This is a very, very fluid story. Everything happening in the last half an hour. Silvio Berlusconi leaving the presidential palace. We only got the statement from the president in the last eight minutes or so. Matthew is going to go chase the details on that story now and we will bring it to you, of course, as soon as we get it.

Meantime -- well, we know what happened in the markets to date. Markets hate uncertainty, as we know. And they have been betting against Italian 10-year bonds now for some time. Nina Dos Santos is in the studio, in London, and she is going to take us through exactly what happened to date -- Nina.

NINA DOS SANTOS, CNN CORRESPONDENT: Yes, Becky, we should stress that these Italian bond markets are actually shut at the moment. But if we actually start out by taking a look at exactly how they faired throughout the course of the week. This is how they have been doing since that G20 in Cannes, that you covered, for a number of days, Becky.

Take a look at this. They really have been spiking and spiking from about 6 percent, which is where they are hovering for the last couple of months or so. To about 6.77 percent, which is a record high for Italy, in the euro area, and its history. And it also means they are growing more and more expensive every single day, for Italy to service its borrowings.

Now, Italy is yields, though, staying on its 10-year note, spans about 6.77 percent. And why is this important? It is because it is perilously close to 7 percent. That is generally what economists say is the kind of cut off point, beyond which it becomes extremely expensive to keep financing your existing debt, outside on the open market.

And why is this important for Italy? Well, it has the world's fourth largest debt pile, standing at no less than $2.6 trillion in total. Now once you surpass about 7 percent, this is where it gets interesting. The yields shoot up. This is Greece. This is how Greece's 10-year bond was trading just today. Well, above 27.75 percent, similar situation for Portugal, even Ireland, which is slightly better out of these three bailout basket cases; its yield is trading about 8.2 percent.

And what I also want to show you, Becky, is that it is not just this 7 percent cut off point that is important. It is actually the difference between the riskiest countries in the Eurozone, what they have to pay each time they borrow and the safest ones. The irony that we have at the moment is the spread, the difference, between what Italy has to pay to borrow from the open markets is widening with what Germany has to pay. Germany is paying record lows, Italy is paying record highs.

And just quickly, I want to show you, this is how you calculate the spread. You take 1.79 percent away from 6.77, what do you get? You get about 4.98. And that is, 498 basis points is the difference, the spread. A record one between German bundes, and the Italian bonds. So every 1 percentage difference, Becky, it is costing the Italian economy no less than 3 billion euros.

ANDERSON: Hmm, that's a lot of money, isn't it? And for those who don't work in basis points, we are talking nearly 5 percent, of course; 498 basis points, or nearly 5 percent the spread. That is enormous.

Nina, thank you for that.

Well, earlier on today, when the markets heard that Mr. Berlusconi had actually won this vote -- he didn't have the majority, of course, but he won this vote -- the markets really -- well, they didn't like it at all. The prices on these bonds went down, the yields went up, and the indices, the stock market indices went lower. So you can see what the markets are up to. We don't know what is going to happen, of course, on Thursday morning -- or Wednesday morning, sorry -- when these markets open.

But let's talk about what we think is going to happen here. So the markets get a sense of what happens next. I'm joined now by Mario Baldassarri. He is one of the prime minister's former allies, of course, once governing alongside him, now working in the senate committee, in the senate.

Thank you very much indeed for joining us tonight.

Firstly, your reaction to what we have heard in the last 10 minutes or so.

MARIO BALDASSARRI, CHAIRMAN, ITALIAN SENATE FINANCE COMMITTEE: Well, the Berlusconi government had the last year's budget law through the house of representatives, but 380 votes are not enough to have the majority. So there is no majority in one house of the parliament. Now he decided to present the new budget law, in the senate, for next year. And then he is waiting for a new vote at the senate about the new budget law.

He might have the majority in the senate, but the real point is not just a question of one or two votes, more or less. It is a political question. What is the government in Italy? And what is the majority, a solid majority, able to implement structural reforms, (INAUDIBLE) to Italy, by European Central Bank, the European Union, by the IMF, and so on.

ANDERSON: Well, so from what I understand talking to you just before this show, you do not believe that Silvio Berlusconi can pull that off. So certainly we have heard from the president that he will go, after this vote. He will resign after this next vote, if that is the case, what happens next?

BALDASSARRI: Then the president of the republic will have to understand the situation and I would believe that he will try to give -- you know, to form another government. But the real point is this kind of structural reform, Italy has to have done since 10 years ago, since three years, maybe three months ago, and more or less whatever is written in the letter of the European Central Bank is more or less the letter (ph) of program of 2010, of Mr. Berlusconi, and maybe part of the opposition.

ANDERSON: You have said that there will be a new government formed at some point after this vote, and as I have told the viewers, we don't know when this next vote will come. It could be as early as tonight. Will that government, at a guess, be a coalition government or a government of technocrats? For example, run by the economist Mario Monti? Which would be best for Italy at this point?

BALDASSARRI: Well, what Italy has to do is to take political decisions, with a wider majority. So it is not just a technical question. Obviously, a political decision needs a political government. Within the political government there might be technicians giving support, you know, with experience, and good suggestions. But it is not a problem solvable through a technical government. It is a political question to be solved.

ANDERSON: All right. So we don't know whether it will be a government of technocrats yet, or whether it will be a coalition government going forward. The point is this, that Italy isn't insolvent at the moment. It doesn't have a solvency issue. It has a liquidity issue. But how concerned are you that the markets will continue to bet against Italy. Once they have seen Silvio Berlusconi go, that is what they have wanted for some time. Are you optimistic or pessimistic, for the coming weeks?

BALDASSARRI: I'm quite optimistic, because the situation is going to change. And I do believe, and I do hope, that the new government with a wider majority will be able to take that kind of decision in terms of implementing structural reforms. Even because, you have the alternative is a call for new election.

This is the worst situation. We cannot give any answer to the market telling them, wait until February. Then we will see who is going to win the election. We have to give answers in the next few days.

ANDERSON: Right. The worst of all possible outcomes would of course be a general election.

It is what Silvio Berlusconi would have preferred. Let's see whether he goes quietly today, tomorrow, or in the days to come. Sir, we thank you very much indeed for joining us --

BALDASSARRI: OK, thank you.

ANDERSON: -- on what is a fairly cold evening here.


ANDERSON: So, a very fluid story as you can see. We are doing our best to give you the very, very latest on what is happening here in Rome. Just in the last 12, 13 minutes or so we've had the statement from the president office, after Berlusconi left that office, the president told us there would be a vote in the senate on this public finance bill. And after that, Silvio Berlusconi says apparently, that he will resign.

For the time being, from Rome, that is it from us. We'll be back a little later in the show.

Max, back to you.

FOSTER: Becky, also Greece in suspense. We are live in Athens to get the latest on discussions to form a new government there. And who might take the top job and whether the Greece crisis is anywhere near a resolution.


FOSTER: Now, it has always been a good piece of advice. Get it in writing. Well, that is what the European Union is planning to do. Economic Affairs Commissioner Ollie Rehn said today he wants Greece to put its commitments to reform in writing. But the country still hasn't been able to form a new coalition government or decide who will lead it. Diana Magnay is in Athens tonight, to sort all of this out for us.

What's going on there, Diana?

DIANA MAGNAY, CNN INTERNATIONAL CORRESPONDENT: Hi, Max. Well, it seems to be a question, hopefully, at this stage of dotting the I's and crossing the T's. The Greek prime minister said to his cabinet today that this was the final stages. That he hoped for a positive outcome by the end of the evening. And he asked them to get their resignations ready. But as you say, we are still waiting. The talks are still dragging on.

And one of the stumbling blocks appears to be over this question of a signature, which Ollie Rehn wants to see from both major parties here in this country. A signature to say that they promise that they will carry out the agreement made on the October 26, the bailout deal. The leader of the opposition, Antonis Samaras, has said that he has already given his verbal agreement. So the implication is why should he give his written one. So that seems to be one issue that they are trying to work through right now.

The opposition obviously not quite sure how involved it wants to be, associated it wants to be with this new interim government, who is going to have to push through another round of very painful cuts. And also bring in monitors from the EU to sort of stand in ministries and make sure that everything is going according to the troika's plan. Which people here see as an invasion, really, of national sovereignty and don't really appreciate the idea of it, Max.

FOSTER: And in layman's terms, is the bailout for Greece, Diana, still intact as it stands?

MAGNAY: It is for now. But it will depend on whether this new government can be formed. The Euro group has made it quite clear that it means to see some kind of unity government in order to go ahead with its part of the deal, i.e., $180 billion worth, for Greece, in the form of a haircut, etc cetera, etc cetera. But it will need cross party support from Greece if it is to do that. And that is what they are trying to resolve right now. They said they would have it resolved. They said they would have a new prime minister on Sunday night. And it is now Tuesday night, and we are still waiting, Max.

FOSTER: Diana, thank you very much indeed.

Well, business leaders around Europe had hoped the situation would be long resolved by now. The CEO of Old Mutual says he is frustrated by the failure to come up with a solution. And Julian Roberts joins me now here, in London.

Thank you for joining us.

You are in the investment business, long-term investment? So what are you making about all these sort of domestic political shenanigans you are having to watch unfold, right now?

JULIAN ROBERTS, GROUP CHIEF EXECUTIVE, OLD MUTUAL: Well, what we want is a period of civility. I think everyone wants that. And, therefore, we would like solutions to come up so that people know what is going to happen. People want to invest long-term. They want stable markets and they are not getting that at the moment.

FOSTER: What are people doing in terms of investment decisions right now? As you said, they hate uncertainty and it is all uncertainty in Europe, right now.

ROBERTS: Well, there is so much volatility in the equity markets. People are still saving. They are not spending. They are worried about their jobs. But they are going more into cash and fixed interest, rather than equities. And if they have got long-term savings, if they have got their pensions, then they really need to have a stable portfolio of equities.

FOSTER: And how are pensions and these big funds doing right now? Because I don't look at mine.

ROBERTS: Well, it depends what day you look at it. You know, a few weeks ago the FTSE was down under 5,000. It is up at 5,600 at the moment. So a huge amount of volatility. But overall, people are doing OK.

FOSTER: And what is your advice to clients right now? Are you saying stay put until we know what is going on?

ROBERTS: Yes, absolutely so. People are switching from equities into cash. I think that is probably the right thing to do. But don't disinvest totally. Keep that money and just make sure you put it in the right asset class.

FOSTER: I should say, there is all of this political uncertainty, which is feeding into everything else right now. But are you confident that there will be a solution, a political solution to all of this in the near future? Because when people talk about the Eurozone unraveling, which it could, we are talking about months -- years of uncertainty, politically.

ROBERTS: I think the thing that I like the most, is what I have heard out of Greece, that they are looking to put a technocrat in and the government of unity. Let's face it, many of our politicians don't have a background in economics. And it is probably outside their ken to try and solve these problems. So to actually turn around and try to put people in power, who have got the experience and the ability to do so, is probably going in the right direction.

FOSTER: Greece is one thing, though, isn't it? Italy is a whole different prospect. How concerned are you about that going the way that Greece has gone. Because that would start having a direct impact on many more people around the world.

ROBERTS: I think Greece is very different from Italy. So, I think that the Greeks have been a world of their own. I think the Italian, and that economy, is pretty robust and pretty stable.

FOSTER: Really?

ROBERTS: Yes, I am more confident the Italians will get sorted out more quickly.

FOSTER: What if the yields keep going up and they can't afford those immense debts they've got?

ROBERTS: Well, I think what will happen is they will get a proper political set up. Berlusconi has been on the brink of going for a long time. They will then get a government in there that will get control of it. And I think the sort of implementation of the budget cuts will come through. And I think they will get back in order.

FOSTER: What about finally, this concern that pension funds, for example, over the last few years, effectively haven't moved, because of all of this crisis unfolding, and the growth in futures is going to be very small. Are you concerned there will be this generation of people retiring who wouldn't have actually made any money on their investments, who will have to live on a very small sum, in real terms?

ROBERTS: Well, I think what you have to remember is corporates are doing very well. Corporates have cash. It is governments that have the problem. It is governments who spent money that countries haven't had. So, I am actually still quite buoyant about the equity markets, because there is enough liquidity there, there is enough good corporate profits coming through. And that is good news for people's pensions.

FOSTER: OK, Julian Roberts, thank you very much indeed for joining us.

With a great power comes great responsibility. That is message for the Bank of England, meanwhile, as politicians push for more accountability, and more control, in times of crisis.


FOSTER: Rebuilding Greece's economy isn't going to happen overnight. And painful austerity measures are going to make expansion very difficult indeed. At least in the short term. Jim Boulden looks now for what it will take for Greeks to see, not just growth, but sustained growth.


JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT (voice over): Around the Acropolis, on a sunny day, all looks well. Tourists are still flocking here. And musicians ply for a few euros. It is tourism, a mainstay for Greece, that must be seen as the savior for this crumbling economy.

ANTONIS PAPAGIANNIDIS, EDITOR, "ECONOMIC REVIEW": Tourism has been quite up these last months, but when you have riots almost every second day, and the feeling of people being disgruntled, tourism is going to pay the price, too.

BOULDEN: During the latest in a long line of euro crisis here in Athens, the streets this time were peaceful.

There were some anti-government demos, but no strikes and certainly no riots.

(On camera): Still the scars of a recent riot are everywhere on this square. Black from fires, broken glass, missing marble from the pillars on the Finance Ministry.

(Voice over): One hopeful hotel is repairing the marble steps ripped up during October riots. While banks, always a target, continue to repair and rebuild. And change is all around.

PAPAGIANNIDIS: You need time. And that is an essential part of all packages to revamp the Greek economy. You have to get two or three years of mostly peaceful developments. And then you have to get some investment, and investors don't go to places where they don't feel that the foot is really on the earth, solid earth.

BOULDEN: The government has promised privatization as part of a massive reorganization of the economy, so called structural reform. That could take years. It also faces tough opposition to plans to open up to more competition. Certain industries like pharmacies, trucking, and law firms. All pledges on paper to its European partners to help Greece to say it the euro, repair its economy while sticking to tough austerity promises. A bailout, indeed, but with dignity say some on the streets of Athens.

UNIDENTIFIED FEMALE: Greek people need, yes, we need this final dose of money. But we need our integrity.

UNIDENTIFIED FEMALE: The Greek people have worked exceptionally hard. We are not lazy people. We work many hours per day. And they have taken our dignity.

BOULDEN: A recent survey shows consumer confidence is at record lows, economic sentiment appears no better. Greece is aware it needs help. Some say it needs prayers. Outside help, for sure, be it tourists, or foreign direct investments, something has to revive an economy mired in recession, and keep the lights on. Jim Boulden, CNN, Athens.


FOSTER: Now the Bank of England is facing a possible shake up with a group of British lawmakers demanding stronger governance and accountability. MPs on the Treasury Select Committee say they want a small but powerful supervisory board to be set up, which will report back to governments. The British finance minister, the chancellor, would be given short-term powers to step in direct the bank during a financial crisis.

And the committee is also proposing that the successor to the current bank governor, Mervyn King, should serve a single-eight year term, instead of up to two, five-year terms. The Bank of England will set free -- was set free from political control in 1997, when Chancellor Gordon Brown gave the bank the power to set interest rates independently. So, is this just a move by politicians to take back power? Well, the chairman of the Treasury Select Committee Andrew Tyrie joins me now.

Thank you so much for joining me, Mr. Tyrie.


FOSTER: Well, that is the question. I mean, are you trying to assert political control over the Bank of England?

TYRIE: No. And the bank should be -- remain independent, be given the authority to get on with the job as legislation sets out. But the governor of the bank, and the Bank of England as a whole should have a duty to explain very thoroughly its actions. And the current structure that is provided to enable that to happen is not strong enough. Or we need something better. We need more effective scrutiny. We need scrutiny also by a group of non-executives from within the bank. People who don't take the decisions, but who after the decisions have been taken examine whether those decisions have been taken properly, in the right way and with the right papers in front of them and are then able to help parliament assess the performance of the bank.

FOSTER: Presumably, we've just been through the financial crisis, of course, two or three years ago, and, you know, the economic crisis continues. Presumably, there's some dissatisfaction with the way an independent central bank has operated during that time.

What have been the problems that have been exposed?

TYRIE: Well, we don't know because we haven't seen most of the papers. And this is one of the unanswered questions that led us to hold an inquiry into the accountability of the Bank of England in the beginning.

The committee which I chair asked the court of the bank, that's the current group of sort of governing body with some non-executives on it and -- and some executives -- to provide us with the documents on the basis of which they were taking decisions during the crisis, so we could make just that assessment. And those -- some of them have been withheld.

So we're not able to answer that question. There's all sorts of rumors and stories.

I -- I don't think that we need a post-mortem in order to point fingers at people. What we need is a post-mortem to make sure that we've learnt the lessons so that as we go forward, we do a better job next time.

I also think the fact that an institution will know that it's going to be scrutinized will affect the way it takes decisions and goes about making sure that they've got everything right, as they take the decisions in real time.

So it's crucial, in my view, that we do have what I describe as ex- post scrutiny, scrutiny after the event, at a sophisticated level going on within the bank and also with the -- with the scope for parliament to intervene and look itself at those decisions.

FOSTER: OK, Andrew Tyrie, thank you very much, indeed, for joining us from London.

We're going to be back with Becky for the very latest on that breaking news on Berlusconi after the break.


ANDERSON: I'm Becky Anderson in Rome with the breaking news this hour.

Prime Minister Silvio Berlusconi, in Italy, is stepping down. He's on his way out of power. He has agreed to do that after he gets the 2011 budget law passed. It's not clear how soon that might happen. The betting here tonight in Italy is that it will be on Tuesday next week.

The announcement comes after lawmakers sent a crystal clear message of disapproval, even as they approved his budget reforms. More than half of them abstained from the vote earlier on today.

More on that story in a couple of minutes time.

First, Max with the rest of the headlines this hour -- Max.

FOSTER: Becky, the United Nations now says more than 3,500 people have been killed in Syria since March in the crackdown against pro- democracy protesters. The U.N. high commissioner of human rights criticized the government sharply for failing to end the bloodshed.

Greek lawmakers remain locked in negotiations over the makeup of a new coalition government. But Prime Minister George Papandreou says he's confident of a, quote, "positive outcome" by day's end. There are reports that central banker Lucas Papademos will be tapped as his replacement.

And Sachin Tendulkar of India has become the first batsman in history to score 15,000 Test runs in cricket. The 38 -year-old reached that mark on the third day of the first Test against the West Indies in New Delhi. He already holds the world record for most runs and centuries in both Test and one-day cricket.

ANDERSON: Welcome back to Rome.

I'm Becky Anderson.

Now, it's been a chaotic night here after a vote in parliament on the public finances today, in which Silvio Berlusconi acknowledges that he lost his majority and says that he will now resign after this bill is passed, possibly on Tuesday by the senate next week. He is on his way out of power. It's been a messy day here, the news very, very fluid. But as things stand at the moment, Silvio Berlusconi is still prime minister, but only for a short period of time.

Giuseppe Ragusa is an assistant professor of economics at the Luiss Guideo Carli University here in Rome.

I'm going to put a number of questions to you rapid fire tonight.

First of all, were you surprised by what happened, what, half an hour ago?

GIUSEPPE RAGUSA, ASSISTANT PROFESSOR OF ECONOMICS, LUISS GUIDEO CARLI UNIVERSITY: No, I wasn't. Berlusconi is clear -- he doesn't have a clear majority in the parliament. But I think at this point, it's clear that he doesn't have a clear majority in the country. So it's not very surprising that he was not able to reach the majority of the vote in the house, even if he was able to pass an important bill.

ANDERSON: So what happens next?

RAGUSA: I don't know. It's very difficult to say. Of course, there are always two scenarios. The first one is Berlusconi is going to resign and then the party is going to try to form a technocrat government. And this government, the problem is, has to reach a really large majority of votes in the house. And probably, at this point, it's very difficult to do that.

The other option is, of course, to call an election. And these elections are going to be in December, early January. And this is also something new. In Italy, it's never been a vote called in these two months.

ANDERSON: An election here, to my mind, and to many in the markets, is pretty catastrophic. They wanted to see Berlusconi go, but they certainly didn't want to see an election.

RAGUSA: I think -- I -- I think maybe -- maybe you're right. But at the same time, I think an election in a normal country will be the right way to change pace and to go to -- toward the new season of reforms.

ANDERSON: It's called democracy.

RAGUSA: It's called democracy. The problem in Italy is there are many people who fear that even an election is not going to be enough to form a new government with the big majority that is needed to implement these reforms. That's why people are advocating a technocrat government. But a technocrat government may not have the majority of the vote now.

ANDERSON: Meanwhile, Italy has a public debt ballooning to something like $2.5 trillion, an interest rate, the borrowing costs on that, pushing toward 7 percent. Many people say that is an unsustainable level.

Your thoughts?

RAGUSA: Well, my thoughts is at this point, it's clear that somebody has to step in. And I've been telling for some time now, and many people have been telling the European Central Bank has to do something. It's true, there's a credibility issue with Berlusconi. There is an Italian problem. There is a Greek problem. But this also, there is an European issue. And this European issue has to be resolved in the short-term by an intervention, what is supposed to be a lender of the last resort. Usually they're the central bank.

Now, the central bank doesn't want to play this role because Germany doesn't want to really save this country without having an implicitly warranty that something is going to change in the policy of this country.

So the hope is that maybe through -- something is going to change in Italy, something may change through -- Germany is going to have a different attitude toward the situation.

ANDERSON: Giuseppe, thank you for that.

I want to find out what happened in the -- the ECOFIN meeting in Europe -- thank you -- in Europe earlier on today, because what Giuseppe was just referring to there is the -- the idea of giving the European Central Bank or having the European Central Bank effectively pledge unlimited resources to those countries that are solvent. And Italy is a solvent country. It's got a liquidity problem at the moment, but it is solvent.

If the European Central Bank were to pledge unlimited resources as the lender of last resort, then the effective contagion would be very much reduced here and Europe might -- just might be able to get itself out of this crisis.

But the signs from Mario Draghi, who is the new head of the ECB at the moment are simply that he is not prepared see the ECB go that way. The European finance ministers met today, earlier today. The Italian finance minister leaving to come back for this vote -- but, Max, what did we hear from there today?

Any news?

FOSTER: Well, he -- as you say, he was there to take part in the morning votes, but he had to excuse himself from that ECOFIN meeting in Brussels to get there. Now, the rest of his European counterparts continued talks in Belgium. And Olli Rehn, the EU commissioner for economic affairs, said the Italian situation was so serious, he'd be sending investigators to monitor it tonight.


OLLI REHN, EU COMMISSIONER FOR ECONOMIC AFFAIRS: The economic and financial situation over Italy is very worrying. And we want to help Italy, through our rigorous surveillance. And therefore, we are sending -- sending our mission to Rome, back to -- it has left or is about to leave this evening, to start work tomorrow and meet with -- with the ministers and high civil servants in order to get work started.


FOSTER: Well, Silvio Berlusconi hasn't been part of the solution, he is part of the problem. That's what Bronwyn Curtis told me earlier. She's head of global research at HSBC.

Before we heard the news of Mr. Berlusconi's resignation, I asked her how much of the bond market battering is being caused by this political turmoil.


BRONWYN CURTIS, HEAD OF HSBC GLOBAL RESEARCH: Uncertainty always undermines an economy, because it undermines confidence and sentiment. And as if sentiment in Europe wasn't bad enough. So is it important we get a bit of certainty back into Italy.

FOSTER: Would you really have Berlusconi in power than as sort of an unclear leadership process that might follow if he goes?

CURTIS: Well, I think we've always had coalition government in Italy. I think Berlusconi is so damaged now that change would be welcomed. And it depends what that change is. But I don't think that that should happen and then we can move forward. But it's only the first step. It's not going to make a huge change in the way people view Italian debt.

FOSTER: So there would be a positive market reaction to Berlusconi going?

CURTIS: Well, there would be, but it just depends how long it lasts. And it probably won't last very long. As we've seen, we've had positive news in Europe and the Eurozone over the last few weeks before and the effect lasted a very short time.

But I think if they felt -- if investors felt that, you know, a more technocrat government or a more stable government would be able to make some of the decisions that are necessary in Italy, then that would be welcomed.

FOSTER: So that's interesting, a technocrat is the ideal type of leader right now for Italy for you?

CURTIS: Well, I think they're always behind these governments anyway, because they move so much. But I think it -- it's really a matter of pulling tog. And the -- the problem is that once you have a weak government, it is difficult to make big decisions, as we've seen, actually, across Europe.

So I think to -- to really move forward, we need a change. We need to see that steps are being taken. But it's going to be incredibly difficult, because growth is the biggest problem. And we're looking -- we're forecasting growth of around about .5 percent this year and perhaps even negative for Italy next year and they've got this huge debt burden.

And, really, to get that debt burden down, you need growth probably closer to, I don't know, 3.5 to 4 percent. And that's not going to happen soon.

There's a lot of refinancing that has to be done. And so it may need, I don't know, the rescue fund or the European Central Bank to step up still.

But I think, first of all, we need a bit more stability and a bit more certainty.

FOSTER: Is there a tipping point with bond yields, as there seemed to have been with Ireland, for example, and some of the other countries?

If we get to 7 percent with Italy, is that a tipping point for bond yields?

Will they escalate after that?

CURTIS: Well, debt sustainability is always very, very difficult to achieve in a low growth environment. So whether it's 7 percent -- I mean 6.6 or just above that, where we are now, on 10-year bonds, is very high already. So I'm not sure whether it makes a difference whether it's -- it's a little bit more or a lot more at this stage.

What you need to do is get them down.

Now, we've seen, since last Friday, that five-year bond yields, they've risen about .75 percent. And -- and so, you know, that's a lot. So, actually, getting boundaries down is important. And probably the ECB has stepped in -- we don't know for sure -- already, buying Italian bonds. They'll have to do more.

FOSTER: Can bond yields come down, finally, with Berlusconi in power?

CURTIS: I think it will be difficult, because I think his -- he has been so damaged now by the -- his members of his government going to the opposition, by members of his government calling for him to go. So I think it will be very difficult to get bond yields down now unless we saw, you know, something else happening in the Eurozone.

But I think it will take Berlusconi.


ANDERSON: All right. And he is going. Bronwyn Curtis there speaking just before the announcement by the president of Italy that Prime Minister Silvio Berlusconi has agreed to resign after the public finance bill for 2011 is ratified by parliament. And we are told tonight, in the last couple of minutes, that that is a possibility on Tuesday next week.

So he remains prime minister as we speak, but has acknowledged that his majority is gone in parliament and that for the good of the country, at least, he must go.

Matthew Chance has been working the phones in the last 20 minutes to find out exactly what we know and what happens next -- Matt, I know that we've just heard from Silvio Berlusconi.

MATTHEW CHANCE, CNN INTERNATIONAL CORRESPONDENT: That's right. We're working the phones and watching the television downstairs. And he's just appeared on Italian television, actually, you know, a phone interview, as a matter of fact, essentially just confirming that he does intend to -- to resign. We hadn't heard from him up until that point. So that's the first time he's gone on Channel 5, which is the television station that his media company controls.

He also made the point that the international markets, one of the reasons for his position, he says, was the international markets had apparently lost faith in Italy's ability to pass the austerity measures that they had promised they would pass.

And he said one of the reasons I -- I've asked for this budget to be approved before I step down is because we want to show the international markets that we can do what we say we're going to do.

He said we -- let's worry later, he said, about who -- who runs the country.

ANDERSON: Yes. Yes, it's interesting, isn't it, because he acknowledges that he's lost his majority, but he doesn't acknowledge tonight that the international markets have lost faith in him, as well as the ability of Italy to get these austerity measures passed.

And what it appears to me, at least, here tonight, is that he wants to get those measures passed so that he can say, effectively, yes, I'm going, but I was the man to get these -- this bill -- bill through parliament.

CHANCE: Yes, exactly. He's -- he's cleverly, I think, tied his -- the hatred, I think, of -- of his -- his opposition in the parliament for him to their reluctance to pass these austerity measures. They -- they get both. They -- they can -- they have to vote -- if -- if they're willing to get him to resign, allow him to resign, then they have to vote through these austerity measures.


CHANCE: So yes, yes, you're right. He's -- he's -- this is his final stand. He's managed to get his measures through.

ANDERSON: Matthew Chance, we thank you very much, indeed, for joining us.

And back with me in the hour to come, which is CONNECT THE WORLD, up, of course, after "PIERS MORGAN" later on tonight, about an hour from now.

So we know he's going to resign. We know he'll resign after the budget is passed. What we don't know at this point, Max, is what happens then.

Will it be a snap election?

That's certainly the betting here tonight, although the markets, of late, haven't liked that idea, either, that -- that there will still be a sort of sense of uncertainty about what happens next, what happens is Silvio Berlusconi party wins power once again and he's still the leader of that party.

Or will we get a coalition government, or, indeed, a government of technocrats, which is something that you were speaking to Bronwyn Curtis about.

So my guess is that even though the markets will -- will appreciate the fact that Berlusconi is going, the fact that he hasn't gone yet, or nor do we know what's going to happen next may be a concern to these bond markets and traders when the markets reopen tomorrow morning.

For the time being, though, that's it from us.

Back, I think, in a couple of minutes.

But for -- for the time being, at least, back to you in London.

FOSTER: Becky, thank you so much.

We'll be back with you, of course, later on, for more extensive coverage from Rome.

But coming up next here on CONNECT -- on QUEST MEANS BUSINESS, six- and-a-half million people play this game online every day. The next installment of the war game, Call of Duty, is hitting the shelves. We're live to a -- a store in New York City to see if it's got fans fired up.


FOSTER: Now, the latest Call of Duty game is set to take in hundreds of millions of dollars in a matter of days. Modern Warfare 3 was released globally on Tuesday. The company behind the game, Activision, says it's taken more preorders than for last year's release, Black Hawks, which took a record $650 million -- in just five days, that was.

Maggie Lake is at a store in Lower Manhattan for us -- Maggie, people often don't realize how big this business is, right?

MAGGIE LAKE, CNN BUSINESS CORRESPONDENT: That's right. Sorry about that. We're on the streets of New York. It's big, Max. In fact, the -- the video game industry makes more money now than the movie industry. I mean that's how big this has gotten.

Modern Warfare 3 went on sale last night at midnight. Humongous cues here. I'm at a store, Game Stop, on 14th Street in Manhattan. And if you look behind me, you can also see that this has been a steady line all day for people coming to pick up their preorders.

I had a chance to go inside and play a little bit with one of the customers who's getting his first spin. I wasn't that thrilled with my performance. You can check out "BACK STORY" later to see it.

But, clearly, the -- the people are shelling out that money for the incredible visuals and graphics that these games have.

But we talked to an analyst and he said the real interest now, the real hook lies in the online portion.

Have a listen.

JOEL JOHNSON, GAMING ANALYST, KOTAKU.COM: There's two parts. There's the single part -- the single player game, where you play by yourself, which has an epic story. And this is actually a third part of a continuing story with a lot of characters and some characters are going to die that you've played with before. That part is very exciting.

And then, once everybody gets done with that, which is 20 or 30 hours of -- of play -- well, maybe not even that -- then there's the single -- or the multi-player part, when you play online and you're trying to kill all your friends and you're doing all that. This is the most popular multi- player games online, certainly on consoles. So if you like to play online and -- and you enjoy that kind of experience, you -- you really want Modern Warfare the day it comes out, because everybody is going to be moving to this new platform.


LAKE: That's right, Max. And a lot of people think that they -- this -- that gives Activision a little bit of edge over Electronic Arts, which has a rival release right now.

But this is an interesting time. They -- they're expecting to sell five to six million in the first day, 18 million over the course of the lead-up to the holidays. But this is an industry that's sort of in flux. A lot of people gravitating toward the social networking games, the mobile games. So we're going to have to watch this space closely.

But right now, Activision certainly seems like it has another blockbuster on its hands.

FOSTER: Unbelievable graphics, if nothing else.

Maggie, thank you very much, indeed, for that.

We'll be back in just a moment with some -- some market news for you.


FOSTER: It was a very bush show today, but we did want to fit in some information for you about the European banks, because in terms of corporate news, this has really been dominating here in Europe.

And Soc-Gen says that today, it will be scrapping its divided and cutting staff bonuses. And that's after its Q3 profits fell by about 30 percent. This bank's shares have tumbled this year because of its exposure to Greek debt. Although they're up more than 7 percent today, investors clearly happy that the board is taking some action. So looking to the future there.

Meanwhile, there's trouble at Lloyd's Banking Group, but for different reasons. It announced some ugly numbers, a loss of almost $4.5 billion in the first nine months of this year. Last week, it announced its CEO, Antonio Horta-Osorio, was going on medical leave because of a stress- related illness. It's clearly a difficult business to be in right now.

And one other piece of news from the European banking sector. The Swiss government has ordered a Credit Swiss -- Credit Suisse -- to hand over some customer accounts, information. And that was to do with the U.S. investigation into tax evasion. And that's going to affect some American account holders, we're told.

We're going to be back in Rome, though, for the really big story today. Becky will have more details on Berlusconi's future and which was it is going.

We'll be back in a moment.


FOSTER: A big day in European politics. Europe may have lost one of its most colorful leaders. We'll have much more in expen -- extensive and special coverage in an hour.

Becky is in Rome.

ANDERSON: That's right, Max.

Silvio Berlusconi, the Italian prime minister, is stepping down from power, but not tonight.

Earlier today, he acknowledged that he had lost his majority in parliament after a vote on austerity measures which had been pushed on him by the Europeans in this European crisis.

The -- the public finances here in a terrible mess -- $2.5 trillion worth of ballooning public debt and borrowing costs going through the sky.

He says he will go, but only after the vote on these austerity measures is ratified in parliament. That will be around the beginning of December. At that point, he will step down from power. And the expectation here in Rome tonight -- and it's a very, very fluid situation as we speak -- but the expectation is that Italy will then go back to vote in elections in early January.

For the time being, that is it from Rome.

As Max says, we're back with CONNECT THE WORLD in an hour.

For myself and Max, for the time being, have a very good night.