Italy's president confident gov't crisis avoided

With Europe still deep in its debt crisis, it doesn't take much to make the markets nervous. That's what happened Thursday when the 76-year-old Berlusconi withdrew his party's support for Monti's government, threatening a premature end to its ambitious reform program.

Berlusconi's power play also unnerved Italy's president, Giorgio Napolitano, who had tapped Monti to take over as premier last year after markets lost confidence in Berlusconi's ability to push through the needed reforms.

Napolitano met Friday with Berlusconi's top political aide and hand-picked heir, Angelino Alfano, who assured him that the party would work toward an "ordered conclusion of the legislature," a statement from Napolitano's office said.

Napolitano later met with the leaders of the other major political parties and said he was confident that a "constructive and correct institutional path is possible, in the interest of the country and its international image."

Economists for Unicredit, Italy's largest bank, say Berlusconi's decision was "significant and tends to confirm that the next few months will be bumpy" for Monti, with the possibility now looming of an early election before the expected date in March.

"The fact that the electoral campaign moves into top gear certainly increases the political uncertainty," said Chiara Corsa and Loredana Federico in their analysis.

The Italian economy, the third-largest of the 17 European Union countries that use the euro, is in recession as the government enacts tough measures to get a handle on its debts. Italy has the second-highest debt level as a percentage of its GDP in the eurozone — at 126 percent. Only Greece's debt is higher with 150 percent.

Monti's government of unelected technocrats won both confidence votes by a wide margin Thursday, but the vote signaled dangers ahead for the technocratic premier.

With opinion polls showing that the main center-left party, which supports Monti, in line to win an election, the conservative Berlusconi appears to be distancing himself to capitalize on discontent over new taxes and rising unemployment. He has complained that Monti's policies have put Italy into a "spiral of recession."