ROME (Reuters) ? Silvio Berlusconi's closest coalition ally, Umberto Bossi, told him to resign on Tuesday in what could be a mortal blow to the Italian prime minister before a crunch vote in parliament.
Bossi, head of the devolutionist Northern League, said the 75-year-old media magnate should be replaced by Angelino Alfano, secretary of the premier's PDL party.
"We asked the prime minister to stand down," Bossi told reporters outside parliament.
Berlusconi had remained defiant ahead of Tuesday afternoon's vote on a public finance measure, rejecting calls from all sides to step down.
But Bossi's action could tip the balance against him as red lights flash on bond markets about Italy's instability.
The League, together with many members of the PDL, were believed to want Berlusconi to make way for a new center-right government capable of tackling a huge economic crisis and restoring the confidence of markets without handing power to a transitional administration.
Earlier, in another sign that Berlusconi's grip on power was sliding, five PDL rebels said they would not take part in the vote on public financing, due to follow a debate starting at 1430 GMT, putting his majority in serious danger.
However, the center-left opposition also said they would abstain. They said they wanted to lay bare the weakness of Berlusconi's support while allowing the passage of a bill that is vital for government funding.
This meant the measure was likely to pass, but potentially expose Berlusconi to a humiliatingly low vote that would ratchet up the pressure to topple him.
While Berlusconi's demise has turned into what commentators are calling a "long agony," interest rates on Italy's debt have soared to levels that are causing deep concern about the survival of the euro zone if its third largest economy cannot service its debts.
Yields on Italy's 10-year benchmark bonds rose to 6.74 percent on Tuesday before dropping back. Analysts said Italy was reaching the point where Portugal, Greece and Ireland had been forced to seek a bailout.
Finnish Prime Minister Jyrki Katainen said Italy was just too big to bail out. "It is difficult to see that we in Europe would have resources to take a country of the size of Italy into the bailout program," he told parliament in Helsinki.
As the spread between Italian and German bonds -- a reflection of the extra risk of holding Italian bonds -- approached 5 percentage points, Italian employers' association leader Emma Marcegaglia said: "We can't go on like this for long."
Analysts say current interest rates, if maintained for long, would cancel out the budget savings planned as part of a painful austerity program.
BERLUSCONI DEFIANT
But Berlusconi, who has dominated Italian politics for 17 years, has refused appeals from all sides to step down.
"I'm not leaving," was the headline in the fanatically pro-Berlusconi newspaper Il Giornale, owned by his brother.
Speaking before the latest defections, Berlusconi said he had won back enough party rebels to win the vote, and would then table roll-call confidence motions on the sweeping economic reforms promised to fellow European leaders.
"I want to look those who want to betray me in the face," he said.
If Berlusconi's support falls below around 310 votes in the 630-seat lower house, he will face massive pressure to go. Current calculations seem to put him well below that number.
The opposition says it will likely then put forward a no-confidence motion, which could be held this week.
Guido Crosetto, a government undersecretary, told a morning talk show that he thought the government would win Tuesday's vote but that he was pessimistic about how long it could last after that.
Even if Berlusconi goes, however, there is no guarantee that reforms to cut Italy's massive debt and boost growth will be quickly implemented. There is no agreement among the political parties on either a national unity or technocrat government to get Italy out of the mess.
Berlusconi says the only alternative to the present government is an election early next year. Although this would extend the period of drift, some analysts say an election announcement would at least establish a point of certainty, as it did in fellow euro zone peripheral economy Spain.
The prime minister has for days been working the phones and sending out emissaries to trying to win back the support of enough defectors to avoid humiliating defeat on the finance bill, where his government has already lost once.
If he is defeated again, Berlusconi could either resign immediately -- thought unlikely -- or be ordered by President Giorgio Napolitano to call a confidence vote.
Berlusconi and his closest allies say appointment of a technocrat government -- the option favored by markets -- would be an undemocratic "coup" that ignored the 2008 election result that brought the center-right to power.
(Additional reporting by Giselda Vagnoni, Philip Pullella, Catherine Hornby; Editing by Kevin Liffey)
Source: http://us.rd.yahoo.com/dailynews/rss/world/*http%3A//news.yahoo.com/s/nm/20111108/wl_nm/us_italy1
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