Premier Mario Monti told the Italian president Saturday he is resigning soon, saying he can no longer govern after Silvio Berlusconi's party withdrew crucial support. It paves the way for early elections a year after the unelected economist helped pull the country back from the brink of financial disaster.
Only hours earlier, Berlusconi announced he would run for a fourth term as premier, aiming for a dramatic comeback, considering the billionaire media baron quit in disgrace in November 2011.
The office of President Giorgio Napolitano, who met for nearly two hours with Monti at the presidential palace, said the premier told the head of state that without the support of Berlusconi's party, "he cannot further carry out his mandate, and consequently made clear his intention to resign" once Parliament passes a crucial budget bill soon.
Political turmoil in Italy, mired in recession and trying to escape the eurozone sovereign debt crisis, could spook financial markets, which, with Monti at the helm, had steadily regained faith in the country's ability to honor its debts.
Standard & Poor's rating agency, indicating on Friday that it could lower Italy's rating if the recession endures well into 2013, cited "uncertainty" over whether the next Italian government could stay the tough course of austerity Monti's nonpartisan government moved through Parliament.
Monti is an economist appointed by Napolitano a year ago to head a non-elected government of technocrats that replaced Berlusconi. The premier told Napolitano he would quickly consult with political leaders on prospects for swift passage of the "financial stability" budget law critical to soothing market fears.
The presidential palace statement said Monti warned that if lawmakers didn't pull together behind the bill, that would render "ever more grave the consequences of a government crisis, on a European level as well."
Political instability could send the "spread" -the difference in interest between benchmark German bonds and Italian ones - back soaring again. Monti toiled to shrink the spread.
With elections ever closer, politicians would be loath to shoulder the blame for fueling the crisis. Both Berlusconi's party, and its rival center-left Democratic Party, would likely quickly approve the budget law in the next few weeks.
The Democratic Party's candidate for premier, Pier Luigi Bersani, decried the "irresponsibility" of Berlusconi's party in "betraying the commitment it made a year ago in front of the nation" to back Monti. Bersani said his party would work "as swiftly as possible" for the law's passage.
Once the budget bill passes, Monti will "hand in his irrevocable resignation in the hands of the president," the presidential palace said.
Monti concluded his government's effectiveness was dwindling following back-to-back blows from Berlusconi's conservative Freedom People, the largest party in Parliament. On Thursday, it refused to back two confidence votes in Parliament that the government had tied to legislation.
And on Friday, Berlusconi's hand-picked political heir, party secretary Angelino Alfano, criticized Monti's emphasis on austerity, saying that strategy failed to revive the economy.
In Monti's view, Alfano had essentially delivered "a judgment of categorical non-confidence on the government" and its strategy, the palace statement said.
Before an election date can be set, Napolitano must dissolve Parliament, whose full term runs until late April. Elections must be held within 70 days of Parliament's dissolution, meaning balloting could be held perhaps as early as February, or weeks ahead of the March 10 date that Berlusconi said would suit him.
Earlier in the day, the 76-year-old Berlusconi told reporters outside the training camp for his AC Milan soccer team that he was "running to win," despite opinion polls which indicate his party's popularity has slumped dramatically, and could pull under 15 percent of the vote.
Besides bowing to the financial market pressure last year, Berlusconi has suffered other blows. In October, a Milan court convicted him of tax fraud in connection with dealings in his media empire and sentenced him to four years in prison. He is appealing. Convictions don't become final in Italy until after two levels of appeals are exhausted.
And he is on trial in another Milan courtroom for allegedly paying an underage prostitute for sex and using his office as premier to try to cover it up. Both he and the young woman have denied they had sex. Berlusconi blames that criminal case, and several other judicial probes in the past, on prosecutors he contends side with the political left.
One of Monti's biggest backers in Parliament, centrist leader Pier Ferdinando Casini, bemoaned Berlusconi's bid to return to office.
"It has been a year that Italians are seriously sacrificing to try to avoid Greece's abyss, and, today, there's the reemergence of Berlusconi, who wants to bring us back five years," Casini said on state TV.
Since Monti took office, the retirement age for Italy's generous pensions has been raised, sales taxes have been hiked and a property tax on primary residences - abolished by Berlusconi to fulfill one of his own campaign promises - has been reinstated.
But while opinion polls find shrinking support for Berlusconi, the mogul might be betting on public impatience with those sacrifices.
When pressure from international financial markets forced Berlusconi to reluctantly step down in November 2011 at the throes of sovereign debt alarm, many pundits dismissed any prospects for a comeback bid for the combative businessman-turned-politician, who has led Italy's conservatives for nearly 20 years.
Monti has contended his government's austerity agenda of spending cuts, higher taxes and pension reform, spared Italy - and with it, other nations in the eurozone - from succumbing to financial disaster.
Berlusconi declared "the campaign is already on" and insisted he's running "out of a sense of responsibility" toward recession-plagued Italy. For months, he had been coy about whether he would run. On Saturday, he claimed that a search for a new leader, like the one he was when he burst into politics in the early 1990s, failed, and so "out of desperation" for lack of alternative, he was jumping into the race.
Italian media have speculated that Berlusconi was irked by the recent approval by Monti's Cabinet of a measure that would ban from running for office anyone sentenced to more than two years in prison after convictions are definitely upheld in cases of terrorism, organized crime and offenses in public office, including corruption.
Critics have contended that Berlusconi expended much of his efforts as premier to push through legislation tailor-made to help him in his legal woes.
Since his last election bid in 2008, Berlusconi has lost the key support of its biggest coalition partner, the Northern League, which refused to support Monti's government. But the League, whose founder, Umberto Bossi, has been tarnished by scandal, hasn't ruled out forging a new election alliance with Berlusconi.