European leaders watched Italy with a mounting sense of alarm yesterday as renewed political turbulence threatened to end months of relative calm over the euro and spill over into Spain.
The Italian prime minister, Mario Monti, has announced that he will resign as soon as he has passed a key budget law, well ahead of the official end of his mandate in April, possibly leading to elections as early as February.
France and Italy are trying to bounce a reluctant Germany into swift action to prop up the euro as the deepening crisis sent unemployment to its highest level since the creation of the 17-nation single currency zone in 1999.
France's new Socialist government has announced tax rises worth €7.2bn (£5.78bn), mainly targeting the wealthiest households and biggest corporations, as the country struggles to plug a gaping hole in its budget.
Italy's prime minister, Mario Monti, has warned of the apocalyptic consequences of failure at next week's summit of EU leaders, outlining a potential death spiral that could threaten the political and economic future of Europe.
As the spotlight of investors' attention swings from Greece to Spain, the mood in Italy has been one of increasingly nervous apprehension.
Europe is only at the beginning of a "very tough, very long, hard road" to recovery and its future is still a threat to the US economy, Timothy Geithner, the treasury secretary, warned on Tuesday.