Italy's Senate votes on reform bill

Italy’s Senate is preparing to vote on economic reform measures demanded by the European Union, which should pave the way for Premier Silvio Berlusconi to quit in a matter of days.

The Senate is expected to vote on the stability Bill following its passage in the Senate budget committee last night.

The lower Chamber of Deputies could take up the legislation as early as tomorrow.

While passage of the legislation is critical for Italy’s political transition, the measures themselves are not enough to rein in Italy’s high public debt and spur growth in its stagnant economy.

The EU has already said Italy will need to take additional measures to balance the budget as promised by 2013.

The prospect of a transitional government headed by respected non-partisan economist Mario Monti calmed markets for a second day, with Italy's 10-year borrowing rate down a further 0.21 percentage points to 6.59%. Shares were buoyant too, with the Milan stock index up 1.7% in early trading at 15,477.

Markets have been hit all week by Italy’s political uncertainty and fears that the country was heading for a Greek-style economic crisis which would threaten the existence of the entire eurozone.

They calmed yesterday after a groundswell of politicians rallied around Mr Monti to lead a post-Berlusconi government, though there were still holdouts and divisions within the Berlusconi government over whether to support him.

Italy is under intense pressure to prove it has a strategy to deal with its debts, which stand at €1.9tn, or a huge 120% of economic output – it has to rollover a little more than €300bn 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.

While passage of the reform legislation is critical for Italy’s political transition, the measures themselves do not do all that is necessary to rein in debt or spur growth, which the International Monetary Fund projects at 0.6% this year and 0.3% next year.

European Council President Herman Von Rompuy will hold talks with Mr Berlusconi tonight – a visit that was scheduled before the premier’s pledge to resign.