Berlusconi defiant ahead of key parliament vote

Embattled Italian Prime Minister Silvio Berlusconi faced a critical parliament vote on Tuesday as Europe pressured Rome to implement long-promised economic reforms to avert a debt blow-up.

The combination of Italy's low growth rate and 1.9-trillion euro ($2.6-trillion) debt has fanned investor fears that Italy could be the next victim of Europe's debt crisis even though its deficit is relatively low.

Lawmakers were expected to gather at 1500 GMT to vote on approving the 2010 budget -- a usually procedural motion that has taken on extra significance in the current turmoil following a rebellion by some Berlusconi supporters.

A defiant Berlusconi Monday dismissed talk of his possible resignation as "baseless" and warned against calls for the creation of a unity government to steer a way out of the crisis, saying it would be "the opposite of democracy."

EU Economic Affairs Commissioner Olli Rehn has said he wants answers from the eurozone's third largest economy on its reform plans by the end of the week and a first group of EU monitoring experts is expected in Italy on Tuesday or Wednesday.

"It is essential now that Italy will stick to its fiscal targets, ensure their implementation and intensify the structural reforms that can boost growth," Rehn said on Monday as eurozone finance ministers met in Brussels.

Italy has been on the ropes since last week when the government agreed to special surveillance from the International Monetary Fund and the European Union to ensure it was meeting crucial targets to cut its massive debt.

Concerns that Italy is next in the line of fire in the European debt crisis after the turmoil in Greece sent the euro lower against other major currencies in Asia on Tuesday while Asian stock markets were mixed.

"Politics are now keeping markets on edge," said Khoon Goh, strategist at ANZ bank in Wellington.

"Greece may still be hogging the headlines at present, but we could be moving from a Greek crisis towards an Italian crisis if policymakers do not address the situation soon," he told Dow Jones Newswires.

Officials point out that Italy is not comparable to Greece but borrowing rates have risen inexorably, with the yield on 10-year government bonds soaring to a record 6.676 percent on Monday.

"We will move forward. We have to be ready to fight," the 75-year-old Berlusconi said in a characteristically defiant message posted on Facebook on Monday after the rumour of his imminent demise triggered a stock market rally.

In a stark message to doubters from his own ranks, Berlusconi also told the newspaper Libero: "I want to look anyone who tries to betray me in the eyes."

"I am sure that tomorrow we will have a majority to carry out the reforms that Europe is asking for and that are needed to boost the economy," he said.

While the coalition between Berlusconi's People of Freedom (PDL) party and the Northern League could win Tuesday's vote and an imminent confidence vote in the upper house of parliament, its position has been severely weakened.

Analysts say it no longer has a 316-vote majority in the lower house and Berlusconi loyalists have called for a widening of the coalition, while the Northern League has said it favours early elections as a way out.

Although the current political picture in Italy is far from clear, the idea that Berlusconi -- a dominant feature in Italian politics for almost two decades -- could step down is no longer taboo, including among his supporters.

Berlusconi's popularity rating has slumped to a record low of 22 percent amid the current crisis and he is currently a defendant in three trials for bribery, tax fraud, abuse of power and paying for sex with a 17-year-old girl.