Rome: Italy’s Senate was set to vote on Friday for austerity measures demanded by the European Union to avert a euro zone meltdown, while a new emergency government is expected within days, ending the Berlusconi era.

Palazzo Montecitorio, Italy’s parliament building. (Bloomberg photo)

Voting for the first time in the upper house will be Mario Monti, the former European Commissioner who has emerged as favourite to replace Prime Minister Silvio Berlusconi.

Paving the way for Monti’s appointment, President Giorgio Napolitano made him a life senator on Wednesday in a surprise move that raised his already high profile and instantly made him a legislator.

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Berlusconi, who lost his majority in a vote on Tuesday, has promised to resign after the financial stability law is passed by both houses of parliament.

The law is due to be approved by the lower house Chamber of Deputies on Saturday.

That would mean Napolitano may accept Berlusconi’s resignation as early as Saturday night and formally mandate Monti to try to form a new government soon afterwards.

Napolitano has urged parliament to act fast and some commentators say a new government made up mostly of technocrats could be in place as early as Sunday night before markets open on Monday.

The president moved quickly to calm markets on Wednesday after Italy’s borrowing costs reached levels that could close its access to market funding, a development which would threaten the future of the euro zone.

He gave assurances that Berlusconi would honour his pledge to step down after parliament approved reforms geared to placate markets and he would waste no time in either appointing a new government or calling new elections.

Berlusconi changes his mind

At first, Berlusconi had insisted that early elections were the only option. But he has since softened his stand and is said by sources to be open to a new government.

Monti, a highly respected international figure, has been pushed by markets for weeks as the most suitable figure to lead a national unity government to urgently push through painful austerity measures.

Napolitano met Monti on Thursday night, and, in a sign of the urgency of the situation, spoke by telephone with US President Barack Obama.

In one badly needed success that calmed markets somewhat, Italy managed to sell €5 billion ($6.8 billion) of one-year bonds on Thursday, but had to pay a whopping 6.087% interest rate, the highest in 14 years.

It was not clear how much of Berlusconi’s PDL, which has undergone many defections and splits in the past few days, would support the new government, expected to include respected experts as well as a few politicians.

It will be supported by most centrists and the biggest opposition force, the Democratic Party.

Berlusconi’s chief coalition partner, the Northern League, has said it would not back Monti.

Monti, who is currently head of Milan’s prestigious Bocconi university, is a tough negotiator with a record of taking on powerful corporate interests as European Competition Commissioner.

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