Italian Premier Silvio Berlusconi has resigned.
Thousands of people who had poured onto the streets of Rome cheered when word came that Berlusconi had handed in his resignation to President Giorgio Napolitano.
Some sang Handel's "Alleluia" chorus, while others cheered, jeered or yelled "buffoon" and danced in a conga line as Berlusconi's political career ground to a halt.
The Italian premier had survived numerous corruption and sex scandals over almost two decades but his political career was no match for an economic crisis that threatens the stability of not only Italy but the entire European Union.
Berlusconi quit as promised after the Italian parliament's lower chamber passed a series of economic reforms demanded by the country's eurozone partners. His last act as a political leader was an early evening cabinet meeting.
But even with a new transitional government in place and respected former European commissioner Mario Monti likely leading it, there are some doubts it will be able to steer the country out of its debt woes.
"The European Union has been asking for deeper measures of austerity," Reuters Rome Bureau Chief Barry Moody told Â鶹´«Ã½ Channel on Saturday.
Moody said the recent Greek crisis pales in comparison to the Italian situation because Italy is a much bigger economy.
"The basic problem is Italy is too big to bail out," he said. "If they wanted to have a bailout like Greece, it would probably break the eurozone."
Napolitano will hold a series of meetings with representatives from Italy's main political parties on Sunday morning before likely going ahead and appointing Monti to lead the transitional government.
The economic reforms passed Friday by the senate and passed Saturday afternoon by the Chamber of Deputies, include a measure that would increase the retirement age starting in 2026, although it does nothing to address the inherent problems caused by the country's inflexible labour market.
The next step for parliament will be the introduction of much more painful reforms and austerity measures that would deal with the country's staggering $2.6-trillion debt, which is 120 per cent of Italy's economic output. Next year alone, Italy must roll over more than $410 billion in debt.
The yield on benchmark Italian 10-year bonds fell to 6.48 per cent Friday, safely below the crisis level of seven per cent reached earlier in the week.
Stock markets around the world were rocked this week by the uncertainty surrounding Berlusconi and his government's inability to face the crisis head on. But Berlusconi's promise to resign after a 17-year career in politics appears to have eased the crisis.
It was an ignoble end for the 75-year-old billionaire media mogul, who came to power for the first time in 1994 using a soccer chant "Go Italy" as the name of his political party and became Italy's longest-serving post-war premier.
But his three stints as premier were tainted by corruption trials and charges that he used his political power to help his business interests; and his last term has been marred by sex scandals, "bunga bunga" parties and criminal charges he paid a 17-year-old girl to have sex -- accusations he denies.
The greatest fear from outside the country was that an Italian default could tear apart the 17-member eurozone and deal a severe blow to the economies of Europe and others around the world.
The head of the International Monetary Fund, Christine Lagarde, said Italy's political transition over the next few days should send a "clear sign of clarification and of credibility" that the country is now on the right path to get its finances back in order.
The IMF has a key role to play over the next few months in overseeing Italy's efforts to pull itself back from economic disaster, monitoring how it implements reforms to rein in debt and spur growth, which is projected at a scant 0.6 per cent this year and 0.3 per cent next year.
With files from The Associated Press
