A journalist I know loves to complain nothing ever happens in Italy. Perhaps it’s the locals enjoying their evening passeggiata at a snail’s pace, while the overwhelming economic paralysis drives the next generation away. But if you are looking for political drama Rome could give the West End a run for its money.

When Prime Minister Mario Monti on Saturday announced his intention to resign after the passage of key budget legislation before the end of the year, he not only shocked the nation, he unleashed a political crisis that could derail the financial markets and even destabilise the European Union. National elections previously planned for March are now expected to be held a month earlier in February, after Parliament is dissolved.

Monti, the 69-year-old quietly-spoken technocrat, told President Giorgio Napolitano of his intentions when they met at the presidential palace on Saturday.

But this was merely the second act. Just hours before the meeting former prime minister Silvio Berlusconi ended months of speculation and dramatically declared he would seek a fourth term as the country’s leader in next year’s elections because of his concern about the state of the country and his “sense of responsibility”.

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“Inevitable,” was the dour reaction from my local newspaper vendor. “The only thing that can save us from Berlusconi is his death.”

Raffaele De Mucci, professor of political science at Rome’s Luiss University, said he was very disturbed about Berlusconi’s re-emergence and had not been expecting it. “I don’t know the kind of calculations on which he has based this move,” De Mucci told Crikey. “He has no chance of winning, he should have been more responsible.”

The weekend developments are likely to unsettle financial markets already concerned about Italy’s bleak economic outlook and come after a dire warning from Standard & Poor’s last week that it may review the country’s credit rating if the economy deteriorates further in 2013.

Erik F. Nielsen, chief economist at the country’s largest bank, Unicredit, warned investors that the latest political upheaval would lead to a sell-off in Italian assets on Monday and fuel market volatility in the months ahead .

According to an official statement released by the president’s office, Monti said he could no longer carry out his mandate after members of Berlusconi’s People of Freedom (PdL) party abstained from a Senate vote on economic measures on Thursday.

The former academic and European commissioner told the Italian daily Corriere della Sera he was driven to act when Angelino Alfano, the secretary of the PdL, the following day attacked the Monti government’s austerity measures and said that the administration had run its course. “I felt really angry reading those words,” Monti told the newspaper. “I reached the conclusion that I couldn’t go forward like that.”

On Sunday, Italy’s political parties swiftly moved onto a campaign footing amid speculation that Monti, who was appointed a senator for life when he replaced a disgraced Berlusconi a year ago, could throw his support behind a centrist coalition.

“It is very likely that Monti will take part in the campaign while it is not yet clear with whom, the centre or the centre-left,” said Professor James Walston from Rome’s American University. “He is probably considering his options.”

Berlusconi, the 76-year-old billionaire media magnate, met Alfano and other party leaders at his luxury villa at Arcore outside Milan and was also expected to begin talks with his former coalition partner the Northern League.

Once Parliament is dissolved an election must be called between 45 days and 70 days, and that means elections are most likely to take place in February. Berlusconi’s main opponent is expected to be Pier Luigi Bersani, endorsed as head of the centre-left Democratic Party in nationwide primaries.

But his first challenge is to win support for his bitterly divided party as its popularity has just reached a record low of 14% according to the latest poll — half the level of support recorded for its main opponent, the Democratic Party.

Several of his own MPs including former foreign affairs minister Franco Frattini have been openly critical of his intentions and the damage his indecision has done to the party. There have also been suggestions that Berlusconi was re-entering politics as a means of resuming his attacks on the judiciary and to steer attention away from his personal legal battles.

He is currently appealing a recent tax fraud conviction and still fighting charges that he paid for s-x with an underage pr-stitute in the so-called Ruby trial, which is expected to conclude in Milan soon.

Professor Walston described Berlusconi’s latest revival as Sunset Boulevard on the Tiber: “Berlusconi is the ageing star who refuses to accept that he is past it and still craves the adulation and attention of fawning fans and the media.

“He is 76 and despite (and sometimes because of) the very visible pancake makeup, he looks his age and more. He knows that he risks an electoral disaster and before that bitter criticism from his own former party faithful. That is why he has waited so long to declare his hand.”