Italy's borrowing costs surge, despite Berlusconi's intention to resign

Berlusconi had said he wanted to show global markets that the country was "serious" about sorting out its finances.

But this morning, Italy's 10-year government bond yield - the rate the country pays in interest to borrow money - rose above 7%. Bond yields of more than 5% are unsustainable in the long term.

Greece, Ireland and Portugal officially sought emergency funding only when 10-year bond yields breached 8%.

However for all three, 7.3% was the point of no return. Once the bond yields rose above that level, they did not come down again.

The European Central Bank (ECB) has reportedly been buying Italian bonds this morning in order to drive the yields down.

It comes after Berlusconi agreed to resign last night - but not until his proposed economic reforms are approved by the country's parliament.

Yesterday, Berlusconi won a crucial budget vote in the lower house, but humiliatingly lost his majority in the process.

Berlusconi's victory was a hollow one as it was achieved through a mass abstention of opposition MPs and 11 of his own supporters who he bitterly labelled as "traitors".

He won with 308 votes - eight short of a majority. There were 321 abstentions.

Following the dramatic events, Berlusconi called on President Giorgio Napolitano to explain what had happened and inform him he would step down after the reforms were passed.

The prime minister's budget reforms are based on pledges he made at the G20 summit in Cannes last week.

The raft of measures includes an increase in the retirement age and widespread job cuts to prevent Italy plunging into an economic abyss.

However, many commentators believe it will not be enough to stop the country - the third largest in the eurozone - from defaulting on its massive €1.9 trillion debt, or 120% of its GDP.