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Umberto Bossi, leader of the oppositon Northern League, steps down as financial scandal engulfs the party.
Mario Monti's cabinet votes in favour of package of tax hikes and pension reforms worth $32bn in a rush to ease crisis.
"Three-pronged" agreement reached in Brussels entails a 50 per cent cut in private banks' Greek bond holdings.
European leaders say progress made on bank recapitalisation but major sticking points remain at Brussels crisis summit.
Threat of government collapse comes with Italy squeezed by eurozone partners over its $2.5 trillion debt pile.
Silvio Berlusconi faces fresh calls to step down over phone transcripts in which he boasts of his popularity with women.
Standard and Poor's downgrades rating to AA+ for the first time, as China says US must "cure its addiction to debts".
Victory could boost a beleagured Berlusconi, still smarting under two recent electoral defeats.
The turbulent political and personal life of Italy's prime minister at a glance.
Berlusconi wins no-confidence vote but result exposes weakness of ruling coalition.
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