ROME (AP) — Expectations that respected economist Mario Monti will lead a new interim Italian government helped calm market fears Thursday that the country was heading for a Greek-style crisis that would threaten the existence of the entire eurozone.
With a groundswell of Italian politicians voicing support for a technocratic government led by the former European Union competition commissioner, confidence grew that the transition of power from Berlusconi will be swift.
As in Greece, where economist Lucas Papademos was appointed prime minister Thursday, there are hopes that Monti's experience in global finance and his non-involvement in partisan politics will help the country through market turbulence.
Italy's ten-year borrowing rate slid sharply Thursday back toward levels that are considered manageable — for now. On Wednesday, the rise in the ten-year bond yield to well over 7 percent stoked panic in financial markets that Italy was heading the same way as Greece, Ireland and Portugal and might need outside help.
Monti, 68, has become favorite to lead Italy out the financial morass after being named a senator for life by President Giorgio Napolitano who, as head of state, will name the next premier.
Napolitano assured skittish investors that Berlusconi will step down, as promised, after reforms are passed — likely by Saturday.
Monti was sighted by photographers being driven into Rome's Quirinal Palace Thursday evening for talks with Napolitano.
Although Monti can only be named premier after Berlusconi hands in his resignation, his meeting with Napolitano will allow him to explain how he intends to command enough loyalty in the Italian legislature to ensure swift implementation of economic reforms needed to revive growth.
The elegant, gray-haired Monti, made his reputation as a strong-willed economist when as EU competition commissioner he blocked General Electric's takeover of Honeywell. He currently heads Milan's prestigious Bocconi University.
In what may bode well for a smooth transition, Berlusconi congratulated him on his new post in a telegram, wishing him "fruitful work in the country's interest" and recognizing his accomplishments.
Italy is under intense pressure to prove it has a strategy to deal with its debts, which stand at €1.9 trillion ($2.6 trillion), or a huge 120 percent of economic output — it has to rollover a little more than €300 billion of its debts next year alone. But economic growth is weak and the government failed to enact reforms to revive it over the past decade.
With the eurozone and global economies at risk in the event of an Italian default, European governments are pushing Italy to clear up questions over its political leadership quickly.
European Council President Herman Von Rompuy will hold talks with the premier on Friday night, Berlusconi's office said. His visit to Rome was scheduled before Berlusconi's pledge to resign.
If lawmakers stick to their timetable, the Italian government's so-called "stability" measures should have won approval in the Senate by Friday evening and be on their way for final passage Saturday in the Chamber of Deputies.
Germany's Chancellor Angela Merkel told reporters in Berlin "it is very important ... that Italy wins back its credibility.
"That means the austerity package being implemented very quickly, as is now the plan, and above all the political leadership being clarified as quickly as possible — because I think that is very important for Italy's credibility," Merkel said.
Investors are worried that if Italy's borrowing rates remain too high for too long, it will be blocked out of financial markets and need rescue loans to repay its bondholders. That could be devastating for both the euro and the global economy.
Europe has already bailed out Greece, Portugal and Ireland — but together they make up only about 6 percent of the eurozone's economic output, in contrast to Italy's 17 percent.
Any further improvements in Italy's markets will depend on passage of the austerity measures and the appointment of a government of technocrats headed by Monti.
Berlusconi's party remained split on whether to support Monti although some key elements have signaled support.
The allied Northern League, Berlusconi's key coalition partner, were staunchly opposed, while the main opposition parties appeared willing to accept Monti and a technocratic government despite some reservations from hard-line elements of the left.
Foreign Minister Franco Frattini said early elections would not help the country solve its economic problems. "It would be prudent not to rush to the ballots, plunging the country into a three-month electoral campaign as spreads fly and our debt rises," Frattini said.
As hopes grew for a swift handover of power in Rome, the government easily sold €5 billion ($6.8 billion) in 12-month bonds at an interest rate of 6.087 percent. Though that's up sharply from 3.57 percent in the last such auction last month, it was well below analyst expectations of 7 percent. Demand for the bonds was also strong, almost twice the amount on sale.
The European Central Bank has been buying up Italian and Spanish bonds in the secondary markets to help keep borrowing rates from becoming unsustainable. There's speculation that the ECB was back in the markets Thursday trying to get Italy's borrowing rates down. The ECB did not comment.
Whatever the composition of the next government, there are no quick easy fixes to Italy's debt problems.
In Brussels, the European Union emphasized that Italy is unlikely to fulfill its promise of balancing its budget by 2013 if recently promised austerity and reform measures aren't implemented.
According to the EU's latest forecast, which does not take into account the most recently promised reforms, Italy will still run a deficit of 1.2 percent of national income, with debt close to 119 percent of economic output.
Barry reported from Milan. Gabriele Steinhauser contributed from Brussels.