Domenico Siniscalco resigned on Wednesday night, according to the economy ministry. He had unsuccessfully tried to oust
central bank governor Antonio Fazio, who has been accused
of discriminating against a Dutch bank in a takeover battle.
Berlusconi said he had named Siniscalco's predecessor, Giulio Tremonti, who himself had been forced to resign the post a little over a year ago, to replace Siniscalco.
President Carlo Azeglio Ciampi later approved Siniscalco's resignation and Tremonti's nomination, Ciampi's office said.
Siniscalco's resignation came days before the Cabinet must approve its 2006 budget, and just a few months before general elections.
"Really, I couldn't take it anymore," Siniscalco was quoted as saying by the Italian paper La Repubblica.
Berlusconi has been suffering
from a popularity crisis
The resignation of a highly respected, politically independent economist like Siniscalco added to the problems of Berlusconi's government, whose popularity has been declining in recent months mainly because of the country's sluggish economy.
"The country is paralyzed, and this worries us very much," said the head of Italy's powerful industrialists' association, Luca Cordero di Montezemolo.
The centre-left opposition demanded that the whole government step down and call early elections. The vote is
now scheduled for mid-2006.
Romano Prodi, the center-left leader expected to challenge Berlusconi at the elections, said that "prolonging this agony would be grave for all of our families, companies and for the country's economy."
But Berlusconi, who is trailing behind the opposition in opinion polls, seemed determined to act swiftly, picking Tremonti a little more than a year after he resigned at the demand of a coalition ally in return for the survival of Berlusconi's government.
Fazio (R) is accused of
mishandling a takeover struggle
His resignation in July 2004 had been demanded by Deputy Premier Gianfranco Fini, whose right-wing National Alliance is Berlusconi's largest coalition partner.
Tremonti had also locked horns with Fazio over Tremonti's proposed reforms to the Bank of Italy, which would have reduced the governor's sweeping powers and cut short his life term.
In his strongest criticism yet of the governor, Berlusconi said late on Thursday that Fazio's position as governor "is inappropriate and incompatible with Italy's international credibility."
The recent accusations against Fazio center on his handling of a struggle between Banca Italiana Popolare Scarl and Dutch rival ABN Amro Holding NV for control of Banca Antonveneta SpA. Wiretapped conversations published in the Italian media suggested Fazio favored the Italian bank's bid. Fazio denies wrongdoing.
"The problem isn't Fazio, but those who are incapable of solving the problem"
Former Italian finance minister, Domenico Siniscalco
"The problem isn't Fazio, but those who are incapable of solving the problem," the daily La Repubblica quoted Siniscalco as saying. "For this I'm not embittered, I'm scandalized."
"This event has struck at the heart of the credibility of our financial system," Siniscalco said.
The Bank of Italy governor is appointed for life, and the government cannot force him out. Siniscalco has been among Fazio's fiercest critics, repeatedly calling for his resignation.
Fazio was flying to Washington global finance talks that begin Friday with a meeting of the finance ministers and central bank presidents of the world's seven richest countries.
According to La Repubblica and other reports, Siniscalco was also upset because the coalition failed to reach an agreement over much-needed spending cuts aimed at keeping Italy's 2006 budget deficit under control. The government has to present the budget within the next nine days.
"Today's resignation by Economy Minister Siniscalco indicates that the budget law will be shaped by ... Berlusconi's electoral needs more than by the those of the country," Lorenzo Codogno, an analyst with Bank of America, said in a statement.
Berlusconi said Italy will now be represented by Tremonti at an International Monetary Fund meeting in Washington.