Italy: Last days of Mario Monti

Mario Monti became PM as an unelected technocrat backed by the EU

Sooner or later, politics - with all its raucousness and uncertainty - was going to return to Italy. It now looks as if elections will be held in February rather than in April when the government's term runs out.

On Saturday night Mario Monti announced that he would stand down as soon as parliament has approved next year's budget. He took the decision after Silvio Berlusconi's People of Freedom Party (PdL) had withdrawn its support. "I have become convinced," said the Italian prime minister, "that we could not continue like this anymore".

So one of the great Italian games commences: political bluff, power plays, deals made and broken and shifting alliances.

Mr Berlusconi, his party weakened by in-fighting and his own indecision, spied an opportunity. Although Mario Monti is respected abroad as the leader who brought stability and reform to Italy, at home the economy remains mired in recession. Mr Berlusconi, who will be campaigning to be prime minister for the sixth time, will base his campaign on opposing Mr Monti's economic policies. He will accuse the unelected, technocrat prime minister of leading the country into a "recessive spiral without end". Already his allies are fanning out and accusing Mr Monti of having made "grave errors".

There will be some Italians drawn to this argument. Italy is in recession. Unemployment, at 11.1%, is still rising - and so is its debt mountain. What Mr Monti did was to bring the deficit under control and to implement reforms which would open up the economy. For this he was widely applauded in Europe's capitals.

EU support for Monti

Chancellor Angela Merkel and the former French President Nicolas Sarkozy had made no secret of their desire to see Mr Berlusconi go - they believed the scandal-wracked PM endangered the survival of the eurozone. It remains the case that saving Italy is probably too big a task for Europe's permanent rescue fund.

In the year since Mr Monti has been in office the political mood in Italy has changed. Many Italians welcomed the new-found respect for the man leading their country. Mr Monti immediately was offered a seat at Europe's top table.

In that time Mr Berlusconi's charm has lost much of its appeal. He languishes in the polls and will be fortunate to get 20% of the votes. That will not give him power, but as Professor James Walston from the American University in Rome says, "that will give him a very strong hand in deciding what things to do". He could be a political spoiler. It is widely believed in Italy that Silvio Berlusconi seeks influence to resist the legal battles - including having allegedly had sex with an under-age prostitute - that he still faces.

The left is in a much stronger position than it was a year ago. The centre-left Democratic Party (PD) has just held a primary and confirmed Pier Luigi Bersani as its candidate. He is expected to win the elections and has promised to continue with Mario Monti's reforms and his austerity plans.

For all that Europe's leaders are fearful. The President of the European Commission, Jose Manuel Barroso, was quick to warn Italians not to use the "next elections as a pretext to put in doubt the necessity of the measures approved until now".

The speed with which Mario Monti announced he would stand down raises the question of whether he might be persuaded to lead some parliamentary grouping. It is what Brussels and Berlin want. He had always intimated that if Italy could not find a convincing government he would be available.

But if he is to play a role in the future and have authority he will need to be backed by the voters. He is deliberately keeping his options open. "I don't know," he told La Repubblica newspaper, in answer to a question about his political future. "If I had to... describe my feelings today," he said, "I would say that I am very concerned". If the markets force up Italy's borrowing costs and sell off Italian holdings that might pave the way for the former economics professor and European commissioner to be called back as Italian Saviour II.

Italians in the weeks ahead will be able to address one of the key issues facing Europe: are the austerity measures and reforms designed in Brussels and Berlin working? Or do Mr Monti's opponents have a point when they say that a year on "not a single economic indicator is positive?"

Italians will get to vote on austerity and stability and Europe will be watching. But not for the first time in Europe's crisis it may be pressure from the markets that decides who will lead the world's eighth largest economy.