Italy was to choose new leadership on Sunday to steer it through a debt crisis that toppled Silvio Berlusconi, amid fresh warnings that the eurozone's woes are threatening the global economy.
Italians danced and shouted for joy in the streets as the flamboyant and controversial Berlusconi on Saturday quit the prime minister's post that he has held for 10 of the past 17 years, becoming the latest European leader brought down by the debt crisis.
Italian President Giorgio Napolitano began a marathon round of talks on Sunday to choose Berlusconi's successor, with former EU commissioner Mario Monti widely expected to be tipped to head a new transition government.
The president is in a race against time to have a new cabinet in place before the markets open on Monday, when the eurozone's third-largest economy will face its first bond auction test of the post-Berlusconi era.
Meanwhile concerns mounted that the eurozone's woes were threatening the world economy, with US President Barack Obama warning that despite positive developments in Italy and debt-ridden Greece, much remained to be done to assure markets that countries like Italy could finance their debts.
"I think that we are not going to see massive growth out of Europe until the problem is resolved," Obama said. "And that will have a dampening effect on the overall global economy."
Chinese President Hu Jintao also warned that global economic recovery was "fraught with greater instability and uncertainty."
Italy has a toxic mix of a 1.9 trillion euro (2.6 trillion dollar) debt, an extremely low growth rate and borrowing costs that are climbing ever higher -- last week, long-term borrowing costs rose above 7.0 percent, a dangerous level that could make the nation's debt unsustainable within months.
Although both the IMF and European Financial Stability Facility have reportedly offered financial help, some economists have warned that, unlike fellow eurozone members Greece, Ireland and Portugal, Italy may be "too big to bail".
Monti, a respected economist who lacks experience in political office, will have to convince Italians to put up with tough austerity measures while pushing through urgently needed reforms to jump-start the ailing economy.
Greece's new government was in a race against time of its own to implement new austerity measures agreed with the EU on October in order to unlock funds essential to avoiding bankruptcy.
In a meeting on Saturday with the new Greek Prime Minister Lucas Papdemos, the leaders of Germany and France stood firm on their demand that before Athens received any more bailout money, it had to implement the measures that it agreed.
"The payment of the next tranche (of the bailout) can only take place when a decisive step has been taken in this matter," said a statement from French President Nicolas Sarkozy's office.
The procedure to confirm the new Greek government -- which was voted in with a comfortable 254 out of 300 cross-party votes -- will begin in parliament Monday, with a vote of confidence expected Wednesday.
The new government's first job will be to persuade the EU and the IMF to disburse an eight billion euro slice of aid from a 2010 bailout deal that is needed by December 15 before state coffers run dry.
Then it must force through painful austerity measures exacted as the price for a second EU rescue package which gives Athens 100 billion euros in loans, the same amount in debt reduction and a further 30 billion in guarantees.
Pushing through new austerity measures is a daunting task in Greece, which has witnessed massive protests against further belt-tightening, which have often turned violent.
In Portugal, another European country that has received bailout money, civil servants and soldiers staged a protest in Lisbon on Saturday against austerity measures aimed at putting the country's finances in order.
The eurozone economic outlook meanwhile remained grim -- an EU forecast this week said growth across the eurozone next year would collapse to 0.5 percent -- a steep drop from its previous prediction of 1.8 percent.
Although a statement on Saturday from the French presidency said that Sarkozy and German Chancellor Angela Merkel had "reaffirmed their determination to totally defend the euro," Germany's Der Spiegel magazine reported that Berlin has made contingency plans in the event that Greece has to quit the eurozone.
With the debt crisis spreading like wildfire, France has also begun to fear that it will be next in the market's firing line -- the gap between French and German 10-year bond yields has climbed to new heights, with France now paying 3.46 percent interest on its bonds, more than twice as much as Germany.
"After Greece and Italy, France?" worried a headline in Friday's Le Monde.