Italy was in the eye of the eurozone crisis on Tuesday with Prime Minister Silvio Berlusconi facing a knife-edge vote and under acute pressure from record borrowing rates to finance debt.
Global markets were focused on the political crisis being played out in Italy, the third-biggest economy in the eurozone, and on Greece which was still locked in talks on a new cabinet.
"We're in the eye of the global storm... Italy needs international credibility," business daily Il Sole 24 Ore said in an editorial.
Austria meanwhile warned that Italy, the third-biggest economy in the stricken eurozone, "can't hope to get help from outside" for its debt because of the size of its economy.
The yield on Italian 10-year bonds rose to 6.73 percent in early trading hours before a vote that will test Berlusconi's support in parliament following several recent defections.
The borrowing rate was at the highest since the birth of the eurozone and at a level that analysts believe is unsustainable and may even force Italy to seek a bailout.
Leading European stock markets edged up slightly in early trading.
Finance Minister Giulio Tremonti, a key advocate of budget discipline who has been in a long-running feud with Berlusconi, cut short a visit to Brussels for a meeting of European Union finance ministers and rushed back to Rome.
The combination of Italy's low growth rate and 1.9-trillion euro ($2.6-trillion) debt has fanned investor alarm that it could be the next victim of Europe's debt crisis even though its deficit is relatively low.
Italian lawmakers were expected to gather at 1500 GMT to vote on approving the state's accounts for 2010 -- a usually procedural motion that has taken on extra significance in the current political and financial turmoil.
The vote is a vital precondition for the approval of any future budgets.
Italian newspapers reported that Berlusconi's centre-right coalition may no longer control a majority in the 630-seat parliament and is in an extremely weak position even if it manages to scrape through Tuesday's vote.
A defiant Berlusconi on Monday dismissed talk of his possible resignation as "baseless" and warned against calls for the creation of a unity government to fight the crisis, saying it would be "the opposite of democracy."
"We will move forward. We have to be ready to fight," the 75-year-old Berlusconi said in a characteristically defiant message posted on Facebook on Monday after the rumour of his imminent demise triggered a stock market rally.
In a stark message to doubters from his own ranks, Berlusconi also told the newspaper Libero: "I want to look anyone who tries to betray me in the eyes."
"I am sure that tomorrow we will have a majority to carry out the reforms that Europe is asking for and that are needed to boost the economy," he said.
Although the current political picture in Italy is far from clear, the idea that Berlusconi -- a dominant feature in Italian politics for almost two decades -- could step down is no longer taboo, including among his supporters.
Among the possible political scenarios mooted in recent days are early elections, a national unity government, a government led by technocrats and a widening of the current coalition to include the centrist UDC party.
Berlusconi's popularity rating has slumped to a record low of 22 percent amid the current crisis and he is currently a defendant in three trials for bribery, tax fraud, abuse of power and paying for sex with a 17-year-old girl.
Italy has been on the ropes since last week when the government agreed to special surveillance from the International Monetary Fund and the European Union to ensure it was meeting crucial targets to cut its massive debt.
The first EU monitoring experts are expected in Italy this week.
Concerns that Italy is next in the line of fire in the European debt crisis after the turmoil in Greece sent the euro lower against other major currencies in Asia on Tuesday while Asian stock markets were mixed.
Khoon Goh, strategist at ANZ bank in Wellington told Dow Jones Newswires: "Greece may still be hogging the headlines at present, but we could be moving from a Greek crisis towards an Italian crisis."
Greece's two main parties were tantalisingly close to a breakthrough on naming a new government and premier after marathon talks with global pressure for a deal mounting and a feared default weeks away.
Outgoing Greek Prime Minister George Papandreou said he would host a cabinet meeting at midday (1000 GMT) as a government spokesman reported progress on finding a new premier in negotiations with the opposition conservatives.