A prominent Italian businessman called on Prime Minister Silvio Berlusconi to resign on Monday, as Italian bond yields rose nearly to August levels, indicating concern that problems in the euro zone's third largest economy could threaten the whole bloc.
Luca Cordero di Montezemolo, chairman of sports car maker Ferrari, said in a letter to the daily La Repubblica that Italy had reached the point of no return and urged Berlusconi to make way for a government of national unity.
Yields on Italy's 10-year, fixed-rate bonds known as BTPs jumped to 6.1 percent from 5.9 last week, piling pressure on the government amid new criticism over its handling of the economy.
The new bond yield, 410 basis points above the yield on benchmark German Bunds, was just below the level at which the European Central Bank stepped in August to cap Rome's borrowing costs by buying its bonds.
The jump in the yield reflected widening market scepticism about measures EU leaders agreed last week to stem the euro zone crisis.
Italian bank leaders said tensions on sovereign bond markets risked hitting the wider economy. Giovanni Bazoli, chairman of Italy's biggest retail bank Intesa San Paolo, told a conference in Rome the risk of a credit crunch was inevitable if tensions on the sovereign debt market continued.
Ferrari's Montezemolo said in his letter There is not a minute to lose. The savings of Italian people, social cohesion and Italy's membership of the euro are all at risk.
We do not have time to wait for the natural evolution of the political situation, he said. The prime minister has to realise that the only way to save the country is through a government of public safety.
Berlusconi is mired in scandal and struggling to contain tensions in his divided centre-right coalition, at a time when Italy is at the centre of the euro zone debt crisis.
The sluggish Italian economy, weighed down by a public debt equivalent to 120 percent of gross domestic product, faces a growing risk of recession next year, which could derail the government aim of balancing the budget by 2013.
Data on Monday showed unemployment in September was 8.3 percent, its highest in almost a year, while the main domestic inflation indicator hit its highest level in three years.
Last week, Italy paid a yield of 6.06 percent at an auction of 10-year bonds, the highest since the launch of the euro more than a decade ago, fuelling growing concern about how it will fund the more than 600 billion euros (518 billion pounds) of bonds it needs to refinance over the coming three years.
Berlusconi, facing trial on under-age prostitution and tax fraud charges, has rejected previous calls to step down, repeating on Friday that he would serve out his term until 2013 to implement reforms he has promised the European Union.
There is growing speculation that the government will fall early in 2012, leading to an election in the spring, when Italian elections are traditionally held.
Berlusconi has survived many confidence votes in parliament this year but his Northern League coalition partners, who oppose significant parts of the reform package, have been increasingly and openly doubtful about whether the government can continue.
They have insisted that the only option would be new elections, rejecting the idea of an interim technical government led by an independent outsider which would be charged with passing reforms.
If the government did fall after losing a confidence vote in parliament, it would be up to President Giorgio Napolitano to decide whether to call new elections or appoint another prime minister to try to form a new majority.
Senior political figures on both the government and opposition sides say Berlusconi appears to want to keep going until at least the end of the year.
The letter from Montezemolo added to a chorus of criticism of the government from sections of the Italian establishment, ranging from the main employer federation Confindustria to leading daily newspapers and the Catholic Church.
Montezemolo, who has no formal party allegiance, said the reforms promised by Berlusconi to the EU last week, including rules to make it easier for employers to lay off staff and make civil servants redundant, were manifestly insufficient given the gravity of the situation.
He proposed a five-point reform programme to cut the cost of politics, reform labour laws, shift the tax burden from labour costs to assets, overhaul the pension system and open up protected sectors to competition.
(Additional reporting by Catherine Hornby, writing by James Mackenzie; Editing by Tim Pearce)