Italy braced for market backlash after Silvio Berlusconi pulls plug on government

Italy's economy minister played down the risk that financial markets will punish Italy when they open today, after Silvio Berlusconi pulled his ministers out of the cabinet and provoked a crisis that has increased the risk of early elections.

The centre-right leader's dramatic move effectively brought down the government of Prime Minister Enrico Letta.

"I think the uncertainty connected to the government's instability has been to a large extent already factored in during the last few weeks," Economy Minister Fabrizio Saccomanni told business daily Il Sole 24 Ore.

Letta was due to meet President Giorgio Napolitano yesterday and will address parliament early this week.

Coalition infighting had already thwarted efforts to push through important reforms Italy needs to emerge from a two-year recession. The resignations will delay those reforms even further. Friction between the two sides had been rising for weeks following moves to expel Berlusconi from parliament after his conviction for tax fraud last month.

The political tensions have worried investors, with Italy's borrowing costs hitting a three-month high on Friday.