Greece, and more significantly Italy, are in the throes of a eurozone debt crisis whose dynamics appear to be accelerating, with what two years ago was an economic and banking crisis now proving to have profound political consequences.

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

Prime Minister Berlusconi today failed to achieve a majority in the Italian parliament in a vote considered a symbolic referendum on his ability to handle the nation at a time of greater urgency than Italy has faced in decades. He agreed to resign if parliament passed austerity measures that the European Union wants.

Italian President Giorgio Napolitano made a statement later in the evening that Berlusconi – who has been a major force in Italian politics over the past 18 years, both in office and out – would leave his job after a budget law is passed this month.

Moments after the today’s parliamentary vote on a budget deal, opposition leader Pier Luigi Bersani stood to say, “I ask you, Mr. Prime Minister, with all my strength, to finally take account of the situation … and resign,” and said a lack of confidence by markets in Italy would soon block the nation’s access to loans and capital.

Italy is Europe’s third-largest economy, and its current 1.9-trillion euro debt (about $2.6 trillion) surpasses that of Greece, Spain, Ireland, and Portugal combined.

Calls for Berlusconi’s departure came from all sides of the Italian political spectrum, including today from key coalition partner Umberto Bossi, head of the Northern League party. Italy’s borrowing costs are above a perilous 6 percent, and there’s a restless spirit among the Italian public. Yesterday, amid rumors that Berlusconi was resigning, markets shot up, then fell as the prime minister said the rumors were untrue.

A crisis that keeps sweeping up victims

In the past year, the euro debt crisis has claimed governments in Ireland and Portugal. Last week Greece and this week Italy have been swept into the fray.

A few hours after the Italian vote, prominent Greek media outlets said Lucas Papademos would take over as prime minister of a caretaker government, following the resignation this week of former Prime Minister George Papandreou. Greece is under pressure by the EU to pass a 130 billion euro bailout deal before it can receive some 8 billion euros to remain solvent in December. Mr. Papandreou’s call for a public referendum on the deeply unpopular bailout terms threw world markets into a tailspin last week, and brought political and European turmoil that the former prime minister could not surmount.

Mr. Papademos, a former deputy chief of the European Central Bank and now a Harvard professor, was the leading candidate for a job that would test the outer limits of any leader. He must bring the two main parties together to agree on next year’s national budget; pass through parliament the 130 billion euro bailout agreed to in Brussels on Oct. 26; negotiate with the troika of the EU, the ECB, and the IMF on the terms of that deal; and set the way for new elections next year.

Delays on the appointment followed reports that Papademos wanted to choose his own ministers and extend what has been considered a 100-day limit for the interim body. As Papademos, a former chief economic adviser at the Bank of Greece, let it be known to reporters, “I was the one to sign Greek entry in the [eurozone], and I won’t be the one to sign its exit.” Read the rest of this entry »