Prime Minister Silvio Berlusconi
Global market tensions eased on Friday as Italian lawmakers gave initial approval to a package of key economic reforms that Prime Minister Silvio Berlusconi has set as the precondition for his
The wide-ranging measures including privatisations and boosting competition in the labour market were adopted by the Senate and will now go before the Chamber of Deputies, or lower house, for a vote expected on Saturday.
Italy has rushed to pass the measures after a parliamentary revolt forced Berlusconi to announce his imminent resignation, sparking unprecedented turmoil on the markets with investors afraid his departure could leave Italy in limbo.
Greece meanwhile was set to usher in a new government whose leader, former European Central Bank deputy chief Lucas Papademos, has already rushed to reassure European Union and International Monetary Fund creditors.
The swearing-in ceremony in Athens was expected at 1400 GMT.
Italian borrowing costs fell to 6.602 percent ahead of the vote -- well below the 7.0-percent threshold breached earlier in the week -- while the difference between French and German bond rates also narrowed sharply.
The head of the eurozone crisis fund however called on Italy to act swiftly to calm the markets, adding his voice to a global chorus of concern about the prospect of prolonged upheaval in the eurozone\'s third largest economy.
\"Italy doesn\'t have much time to reassure the markets,\" Klaus Regling, head of the newly-formed European Financial Stability Facility, said in a newspaper interview. \"The country needs a functioning government as soon as possible.\"
Former EU commissioner Mario Monti, a 68-year-old economist supported by the markets, has emerged as Berlusconi\'s most likely replacement at the head of a transition government but the nomination is still far from a done deal.
The main opposition Democratic Party backs Monti but parts of Berlusconi\'s centre-right coalition and the small opposition Italy of Values party want President Giorgio Napolitano to dissolve parliament and call early elections.
Analysts warn an election campaign now -- more than a year before the next parliamentary vote is expected in 2013 -- could plunge Italy further into financial chaos and that its giant debt makes the country \"too big to bail\".
French President Nicolas Sarkozy was due to speak later on Friday with Napolitano, who spoke to President Barack Obama on Thursday and is playing a key behind-the-scenes role in steering the post-Berlusconi political course.
Also later on Friday, Napolitano is scheduled to meet with European Union President Herman Van Rompuy, who will then have dinner with Berlusconi.
Jitters about Italy\'s 1.9-trillion-euro ($2.6-trillion) public debt and anaemic growth rate has pushed up bond rates to alarming levels well above 7.0 percent this week -- fueling fears of a debt blow-up within months.
International investors remained relatively cautious on Friday.
\"The potential for further negative developments in Europe is keeping people cautious,\" Shannon Briggs, vice president at Morgan Stanley Smith Barney, a US-based wealth management firm, told Dow Jones Newswires.
Foreign exchange trader Moneycorp said: \"If investors are presented with a matching pair of technocrats in charge of Greece and Italy there could be a relief rally for the euro, if only a short-lived one.\"
Stocks in Europe inched up at the opening following a meagre rally in Asia.
British Prime Minister David Cameron said on Thursday that Italy presented a \"clear and present danger\" to the 17-nation eurozone.
But Obama expressed confidence in Napolitano\'s ability \"to put an interim government in place in Italy that will implement an aggressive reform programme and restore market confidence,\" said White House spokesman Jay Carney.
Angela Merkel, the leader of economic powerhouse Germany, also insisted that Germany wishes to preserve the eurozone in its current form, dismissing reports that Berlin was preparing for a smaller currency union.
EU economic affairs commissioner Olli Rehn has warned that the debt crisis was dragging Europe towards a new recession in 2012 due to a \"vicious circle\" of government debt, vulnerable banks and collapsed spending.
An EU forecast said growth across the eurozone in 2012 would collapse to 0.5 percent -- a steep drop from its previous prediction of 1.8 percent.