ROME - Italian Prime Minister Enrico Letta will meet the president on Sunday to try to chart a way out of a deep political crisis after Silvio Berlusconi pulled his ministers out of the government and called for new elections.
President Giorgio Napolitano said he would only dissolve parliament as a last resort but just seven months after the last vote it is not clear if an alternative majority can be found.
Berlusconi, the centre-right former prime minister who was forced out of office in November 2011 at the height of the euro zone debt crisis and faces a ban from parliament for tax fraud, has already launched his election campaign.
Infighting among the left-right coalition government has thwarted efforts to push through reforms Italy needs to emerge from a two-year recession, a 2-trillion-euro public debt and youth unemployment of around 40 per cent.
The political paralysis resulting from the government's collapse will delay those reforms even further in the euro zone's third largest but most sluggish economy.
"It is tradition for the president to dissolve parliament early when it isn't possible to create a majority and a government for the good of the country," Napolitano told reporters ahead of his meeting with Letta.
The prime minister will address parliament on the crisis early next week.
Berlusconi said he decided on the shock move on Saturday after the government's failure to avert a long-programmed hike in sales tax at a cabinet meeting the day before.
Letta dismissed the motivation as a "huge lie," saying instead that the media tycoon, who celebrated his 77th birthday on Sunday, was acting out of fury at his impending expulsion from parliament following a conviction for tax fraud.
"Markets have grown accustomed to Italy's dysfunctional politics but there's a sense that things are now spinning out of control, with potentially dangerous consequences for both Italy and the eurozone," said Nicholas Spiro, head of Spiro Sovereign Strategy.
With fears that markets will punish Italy for the political turmoil, all eyes now are on whether Napolitano can muster backing either for a second Letta government or for an administration led by another figure.
If not, Italy would be forced to return to the polls with a major risk that, with a dysfunctional electoral law and three parties of roughly equal size, they would produce a hung parliament and yet more instability.