Italian Prime Minister Silvio Berlusconi has confirmed that he will stand down after a new budget law is approved in parliament.
His comment, to his own Canale 5 television station, confirmed an earlier statement from President Giorgio Napolitano.
It came after his centre-right coalition failed to secure a majority in a crucial vote in the lower house, securing only 308 votes in the 630-seat chamber.
"This parliament today is paralysed, as far as the lower house is concerned," he said. Berlusconi said Italy was in a "difficult position" with regard to financial markets and had to demonstrate that it was capable of serious reforms. He added that the only realistic option as far as he could see was new elections.
Earlier this evening, Italy's cost of borrowing rose to new record levels after the crucial budget vote. The yield, or rate demanded by investors, to lend money to Italy stood at 6.8% this evening. Rates of 7% are widely seen as unsustainable.
The EU's economic and monetary affairs commissioner said the economic situation in Italy is very worrying. Olli Rehn told reporters the country was facing "very significant" market pressure. He was speaking after a meeting of EU finance ministers in Brussels.
