Italian borrowing costs jumped higher a day after Berlusconi promised to resign after Parliament passes new austerity and reform measures. While Berlusconi's majority was hampered in pushing through reforms, the makeup of Italy's next government remains a looming question.
Berlusconi said he would leave office after a routine vote in Parliament revealed he no longer had the majority he needs to push through policy. He said he would step aside once Parliament passes economic reforms demanded by the European Union to prevent Italy from being swept up further into Europe's debt crisis.
No date has been set, but earlier indications suggested it would happen next week.
Despite the move, Italy's financial markets deteriorated on Wednesday. The yield on Italy's 10-year bonds jumped another 0.37 of a percentage point Tuesday to 6.95 percent. The main Milan stock index was trading 3.6 percent lower at 15,097. Shares in Berlusconi's Mediaset empire were battered, trading down 9.8 percent at euro2.262.
Once Berlusconi resigns, President Giorgio Napolitano must begin consultations to form a new government -- possibly with the conservative leader from Berlusconi's party, or if consensus can't be reached, a technical government may be sought.
Berlusconi is pressing for new elections in early 2012.
"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 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.