Italian government bond yields soared to near 15-year highs, putting the euro-zone's third-largest economy front and centre of the region's debt crisis, despite scrambling efforts by policy-makers to stem the growing contagion.
Italy, the world's eighth-largest economy, overtook Greece as the prime threat to the stability of the 17-country single currency zone, as finance ministers met to try to find ways of building a firewall around the two-year-old crisis.
Italian 10-year bond yields rose to their highest since 1997 -- approaching levels regarded as unsustainable -- with political turmoil in Rome threatening to drag a fourth European economy after Greece, Ireland and Portugal into the debt mire.
Jean-Claude Juncker, the chairperson of Eurogroup finance ministers, said the European Central Bank would take part in monitoring Italy's promised economic reforms along with the European Commission and the International Monetary Fund, effectively putting the country under full surveillance.
Greece's outgoing socialist prime minister and conservative opposition leader rushed to put in place an interim national unity government for just long enough to save their country from imminent default by implementing a new bailout program.
France announced new austerity measures designed to preserve its wobbly AAA credit rating, without which the eurozone might no longer be able to bail out its weakest members.
In Brussels, euro-zone finance ministers agreed a detailed mandate to scale up the currency zone's rescue fund by the end of November to shield vulnerable but solvent economies such as Italy's and Spain's from a possible Greek default.
In Rome, Prime Minister Silvio Berlusconi defied huge pressure to resign as he struggled to hold a crumbling centre-right coalition together after being forced to accept intrusive IMF surveillance of his economic reforms.
Juncker stopped short of calling for a national unity government in Italy, saying it wasn't under E.U./IMF protection.
Former European Central Bank vice-president Lucas Papademos was on his way to Athens, tipped to head a transitional Greek cabinet charged with pushing a $170-billion U.S. bailout plan through parliament to secure a crucial $11-billion U.S. aid tranche before early general elections in February.
A Greek government spokesperson said talks on finding a new prime minister were continuing in a good spirit, indicating no decision had been reached. The Greek cabinet will convene on Tuesday to discuss developments.
A senior opposition source said Finance Minister Evangelos Venizelos and his top economic team would stay for continuity.
Whoever leads the temporary Greek administration will face a monumental task in restoring order to a country of 11 million whose chaotic economy and politics are shaking international confidence in the entire euro project.
In Paris, President Nicolas Sarkozy's centre-right government announced a new wave of austerity measures, bringing forward a rise in the retirement age, raising some taxes and de-coupling welfare benefits from inflation, in a drive to cling on to France's top-notch credit rating.
The package designed to save 18.6 billion euros in 2012 and 2013 inflicted further pain on voters six months before Sarkozy is expected to seek re-election against a resurgent Socialist opposition, whose candidate, François Hollande, is far ahead of him in opinion polls.
Related Stories
