Europe's debt crisis: What's next for Italy and Greece?

Efforts to wrest southern Europe from the throes of a debt crisis continued in fits and starts today.

Italy’s Prime Minister Silvio Berlusconi clarified today that he will not run again for high office after he steps down as prime minister, and Greece is struggling to hash out who will lead an interim government designed, in part, to avert bankruptcy.

Europe, long seen as quiet, stable, and almost boring, moves into uncharted waters as fallout from an accelerating euro crisis proves to have high-stakes political consequences. Governments in Ireland and Portugal were replaced earlier this year, and now Greece and Italy face a political reordering that is both complex and emotional. 

A new Greek government is slated to be announced today. The interim government will be capable of passing a controversial austerity plan linked to a €130 billion ($177 billion) bailout and a tranche of the €8 billion ($11 billion) needed for a fateful December deadline to pay back bond holders.

Greek officials under pressure from the EU announced that the new team would be named yesterday, but ongoing emergency meetings last night proved inconclusive.

Whether the interim prime minister will be Lucas Papademos, a former deputy head of the European Central Bank who has been named repeatedly as possible choice, remains unclear.

Hurdles to a quick decision reportedly include Mr. Papademos’s desire to choose his own team and unhappiness from the New Democracy Party opposition over an EU requirement that acceptance of the bailout terms be put in writing by the unity government.

Greek’s political crisis was sparked by departing Prime Minister George Papandreou last week after he called for a referendum on a stringent austerity plan demanded by the EU as terms for its bailout; world markets tumbled, and Mr. Papandreou could not survive the resulting political and European turmoil. 

Mr. Berlusconi agreed to step down yesterday, after failing to gain a majority in Italy's parliament. But the most dominant politician in Italy since Benito Mussolini will leave only after the parliament agrees to an austerity package. That law is set to pass later this month but may now come sooner.

Berlusconi’s resignation has been widely sought across the Italian political spectrum in an effort assure the EU and financial markets that Italy can put its house in order. The third largest economy in Europe in the past month has seen its borrowing costs zoom upward to unsustainable levels as its debt balloons to some $2.4 trillion. Italy’s borrowing costs soared above 7 percent today, a figure often cited as a benchmark for insolvency. 

Whether Italy will opt, like Greece, for a caretaker government – possibly a "technocratic government" – or will call for new elections, are among the issues Italians are now discussing.

“The eurozone now faces political, economic, financial, and institutional crises all at the same time,” explains Sony Kapoor of the Brussels think tank Re-Define.