Italy's head of state has appointed economist and former European Commissioner Mario Monti to succeed outgoing Prime Minister Silvio Berlusconi and handle a crisis that has brought the eurozone's third largest economy to the brink of financial disaster.

Giorgio Napolitano, the Italian president, made the appointment on Sunday after talks with leaders of the two houses of parliament.

Monti must now draw up a caretaker cabinet and government of technocrats, lay out his priorities and determine whether he has enough support in parliament to govern effectively.

The announcement on Sunday followed celebrations in the streets of Rome over the departure of Berlusconi, who faced a chorus of jeers and insults as he was driven to the Quirinale Palace to hand his resignation to Napolitano on Saturday.

In a video message televised on Sunday, Berlusconi said he was pleased that the government had passed a budget vote in record time with more than 50 per cent of the reforms that were asked by the eurozone, in a demonstration that Italy will and can fulfil the measures as needed by its European partners.

He said that was a sign that he had honored the confidence electors had given his party in 2008.

"Following the approval of the law, I have tendered my resignation as president of the council of ministers. I have done it so Italy could avoid being attacked by financial speculation," he said.

"...So it has been very sad to see my responsible, generous gesture being welcomed with booing and insults.

"But for the hundreds of demonstrators on the street, they should know we have done all we could to preserve our families from the global crisis that has hit Europe."

Pietro Paganini, a political commentator, told Al Jazeera that Berlusconi had "certainly not left behind an attractive legacy".

"Hopefully a new government will first give Italy credibility, which is what the markets demand."

Senator for Life

Following weeks of political uncertainty and calls from international partners for action to control its towering public debt, Italy's borrowing costs soared to unmanageable levels last week, threatening a Europe-wide financial meltdown.

Monti, named as Senator for Life last week, met Mario Draghi, the European central bank president, and politicians from various parties on Saturday as preparations for a transition began even before Berlusconi stepped down.

He is is likely to name about 12 ministers on Monday, political sources said.

Monti received the backing of the main opposition groups and the conditional acceptance of Berlusconi's centre-right PDL after objections from several factions in the party were overcome.

"In the end, a sense of responsibility prevailed," said Mario Baccini, a PDL legislator. He said the PDL would support a Monti government as long as it stuck to reforms agreed by the outgoing government with the European Union.

With the next elections not due until 2013, a government of technocrats could have about 18 months to pass painful economic reforms but will need to secure the backing of a majority in parliament and could fall before then.

Italy came close to a full scale financial emergency this week after yields on 10-year bonds soared over 7.6 per cent, levels which forced Ireland, Portugal and Greece to seek an international bailout.

With public debt of more than 120 per cent of gross domestic product and more than a decade of anaemic economic growth behind it, Italy is at the heart of the eurozone debt crisis and would be too big for the bloc to bail out.

Financial markets have backed a Monti government and as prospects of Berlusconi going became firmer last week, yields dropped below the critical seven per cent level.

"Even though Berlusconi has obviously made a massive imprint on Italy, no one here is really sad to see him go," Al Jazeera's Barbara Serra reported from Rome, where hundreds of Italians had gathered to show their approval of the new political changes.

While he became Italy's longest-serving post-war prime minister, Berlusconi's three stints as the leader were tainted by corruption trials and accusations that he used his political power to help his business interests.

Under pressure

It now falls to Monti to try to reassure markets that a new government will be able to control spending and pass the kind of reforms to pensions, public service and labour markets that his government was unable to implement.

A technical government under Monti would avoid the need for a long and divisive election campaign, unsettling markets further, but its future will depend on maintaining the support of parliament.

A tough negotiator with a record of taking on powerful corporate interests as European Competition Commissioner, Monti will have to navigate the treacherous waters of Italian politics to survive.

On the left, possible reforms such as an increase in the pension age or easier hiring and firing rules could prompt strong opposition from unions once the elation of Berlusconi's departure has passed.

But the threat could be at least as great from the centre-right with Berlusconi's old Northern League coalition partners declaring they will oppose a Monti-led government and many in the PDL also harboring deep reservations.

In a potentially ominous sign of the dangers that may face a Monti government, Italian news agencies reported that Berlusconi had told party colleagues that they would control the future of a new administration.

"We can pull the plug whenever we want," he was quoted as telling party allies.

PHOTO  CAPTION

People gathered outside the Italian presidential palace after prime minister Silvio Berlusconi resigned

Al Jazeera