Berlusconi on ropes after vote humiliation

By Barry Moody and James Mackenzie

ROME | Tue Nov 8, 2011 11:13am EST

(Reuters) - Italian Prime Minister Silvio Berlusconi suffered a huge humiliation in parliament on Tuesday in a vote that indicated he no longer had a majority and ratcheted up pressure for him to resign.

Berlusconi's government won a key budget vote after the opposition abstained but obtained only 308 votes compared with an absolute majority in the lower house of 316 votes.

Opposition leader Pier Luigi Bersani immediately called on Berlusconi to resign, saying Italy ran a real risk of losing access to financial markets after yields on government bonds had approached the red line of 7 percent.

"I ask you, Mr Prime Minister, with all my strength, to finally take account of the situation ... and resign," Bersani said immediately after the vote.

Defense Minister Ignazio La Russa said Berlusconi would consult head of state Giorgio Napolitano on his next move. Napolitano would be in charge of the crisis if Berlusconi stepped down.

La Russa said all options were open after the vote and the government would decide its next move in coming hours.

Berlusconi has been on the ropes for weeks but Tuesday's events seem to be pushing him toward inevitable resignation. He left parliament after the vote, looking angry, to consult with his senior aides.

Earlier Berlusconi's key coalition ally, Umberto Bossi, head of the devolutionist Northern League, told him to step down as the 75-year-old media magnate suffered a series of what could be mortal blows.

Bossi said Berlusconi 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 and desperately trying to win back a large group of rebels in the PDL. The vote showed that he had not been able to stem a major rebellion.

VOTE COULD TIP BALANCE

Bossi's action and the parliamentary vote could finally 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, are 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 five PDL rebels said they would not take part in the vote on public financing, sapping Berlusconi's support.

The center-left opposition said they abstained to lay bare the weakness of Berlusconi's support while allowing the passage of a bill that is vital for government funding.

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.

(Additional reporting by Paolo Biondi , Giselda Vagnoni, Philip Pullella, Catherine Hornby; Editing by Giles Elgood)