Italy’s Prime Minister Silvio Berlusconi, currently engaged in crucial talks with other European leaders to hammer out an agreement to deal with the continent’s debt crisis, is facing yet another controversy at home.

The Rome newspaper La Repubblica has reported that Berlusconi plans to step down from power, either at the end of December or the beginning of January, preparing the way for a new election in 2012. The paper said that the arrangement arose after discussions between Berlusconi and Umberto Bossi, leader of the Northern League (NL) party.

The report claims that, in connection with Italy’s negotiations with the European Union (EU) over the country’s huge debt, Berlusconi agreed to quit in exchange for the NL accepting a hike in the pension age from 65 to 67 by the year 2026.

This was one of the principal demands EU made of Italy in exchange for supporting Italian sovereign bonds.

The NL is a key member of Berlusconi’s ruling coalition government and thus far has not wanted to make many concessions to EU demands for reform.

However, officials of the NL told BBC the report was false and an attempt to undermine the Prime Minister.

Meanwhile, Italy’s fellow EU members are demanding that Rome do something about the country’s massive debt, with current totals about 1.8 trillion euros ($2.5 trillion), or about 120 percent of GDP (second only to Greece in the Eurozone).

BBC noted that, with the third biggest economy in the Eurozone, Italy needs to issue 600 billion euros ($835 billion) in bonds over the next three years to refinance its maturing debt.

Over the weekend, Berlusconi was reportedly criticized by German Chancellor Angela Merkel French President Nicolas Sarkozy for failing to take measures to cut Italian debt in a “credible manner in the coming years. Berlusconi responded angrily to their ultimatums.

Corrado Passera, the chief of Italy's biggest retail bank, Intesa Sanpaolo, told reporters he was disappointed by the slow pace of economic reforms that Italian political leaders have engaged in.

In the situation we are in, I expected an economic program that would be agreed by everyone and not just unconfirmed suggestions to take to Europe. I am disappointed, he said.

Giuseppe Mussari, the head of Italy's top banking association, urged Rome to speed up reforms and restore confidence in the nation’s bonds.

Now is the time to act and we need to act, quickly and well, he told reporters.

Reuters reported that Berlusconi will present a “letter of intent” to Brussels that outlines Italy’s reform program – however, Italian media claims it is vague and lacks cohesion.

 However, on Tuesday, Berlusconi did broach the topic of the end of his political career after 17 years.

I hope the conditions arise where I can leave the responsibility of the presidency to others, perhaps remaining within the party as its founding father, Berlusconi told reporters, according to La Repubblica.

Whatever happens I will do what my party and the coalition ask of me.