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Italy's key borrowing rate soars past 7 pct threshold despite Berlusconi's pledge to resign
ROME (AP) ' Italy's borrowing rates spiked way above the 7-percent threshold that forced other eurozone countries to seek bailouts, a day after Premier Silvio Berlusconi announced he would resign once Parliament passes economic reforms.
On Tuesday, Berlusconi said he was stepping aside for the good of the country and wouldn't run again for office, but his move failed to calm jittery markets. The yield on Italy's 10-year bonds surged Wednesday to a high of 7.36 percent.
The rise in Italy's ten-year yield to over 7 percent is likely to raise jitters that the eurozone's third-largest economy will face the same pressures as Greece, Ireland and Portugal beforehand once their rates rose above that threshold. Markets were unconvinced that a strategy to get their debts down would work and the three small countries were eventually forced into asking for financial help.
With debts of around euro1.9 trillion ($2.6 trillion), Italy's debts are considered by many in the markets as being too big for Europe to bail out. And higher rates would make it more difficult for Italy to rollover its debts and will mean they consume more and more of national income. Italy has over euro300 billion ($412 billion) to raise in 2012 alone.
The worry appear to be that even without Berlusconi at the helm, Italy faces a period of political deadlock. The next government will likely face the same pressures as Berlusconi ' to enact quick reforms to shore up Italy's defenses against Europe's raging debt crisis.
"It is still far from clear that the alternative will materially improve proceedings," said Lee Hardman, an analyst at the Bank of Tokyo-Mitsubishi UFJ.
As Italy's borrowing rates ratcheted alarmingly higher, sentiment in markets took a battering and Milan's stock index was trading 4.3 percent lower at 15,002. Shares in Berlusconi's Mediaset empire were battered, trading down 9.8 percent at euro2.262.
There had been hopes that Berlusconi's announcement would help calm market jitters but Parliament must still pass legislation to curb Italy's debt and spur growth. It could take weeks to pass the measures demanded by the European Union to keep Italy from becoming the next victim of Europe's debt crisis.
Once Berlusconi resigns, Italy's president must decide on an interim government and if it will be led by politicians or technocrats. Berlusconi wants new elections soon with his hand-picked successor, Angelino Alfano, as a candidate.
"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 center-right politicians after 17 years of Berlusconi leadership.
Mario Monti, a former EU competition commissioner who now heads Milan's prestigious Bocconi University, has been widely tipped as a candidate to head a technical government.
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.
Berlusconi's announced departure from office was greeted with relief among ordinary Italians but also wariness about what lies ahead.
"I'm more interested in what's going to happen afterwards," said Caterina Tassa as she bought newspapers at a kiosk near Rome's ancient Pantheon Wednesday morning. "The political class in general is very bad. So let's just say I'm not very tranquil."