Berlusconi yesterday promised to resign after a routine vote in parliament showed he no longer had a majority.

He said he would step down once parliament passes economic reforms demanded by the European Union to prevent Italy from being swept up further into Europe's debt crisis -- a process expected to take a few weeks.

Italy's borrowing costs remained under pressure on the news today, and the main Milan stock index was trading 2.4 per cent lower at 15,296.57 after opening slightly higher.
The yield on Italy's 10-year bonds jumped another 0.16 of a percentage point yesterday to 6.75 per cent.

Once Berlusconi resigns, President Giorgio Napolitano must begin consultations to form a new government. Napolitano made no mention of a date for eventual elections, but Berlusconi said today there was no choice but to have elections soon -- in early 2012.

"I won't run, actually I feel liberated," Berlusconi was quoted as telling the La Stampa daily.

"It's Alfano's turn."

Berlusconi tapped Alfano, his former justice minister, to head his People of Liberties Party a few months ago. At 41, Alfano represents a new generation of politicians that signals an end to Berlusconi's 17-year era.

Berlusconi conceded it was up to Napolitano to decide how to proceed once he steps down.

It's not clear that Napolitano would want to subject Italy to elections any time soon given the need to calm markets. He may try to sound out politicians about the possibility of forming either a government of technocrats or a broad-based government that could hold a majority in parliament.