Italy election campaign kicks off as Monti quits

Monti "handed in the resignation of his government" at a meeting with President Giorgio Napolitano, and will stay on in a caretaker capacity, the presidency said in a statement.

Napolitano will hold consultations on Saturday with parliamentary leaders before dissolving the two chambers and calling a general election which most observers expected on February 24.

In his last speech as premier, Monti said that his stormy 13 months in government had been "difficult but fascinating" and voiced hope that his reform agenda will be continued by any new leader.

Italy was now "more reliable" on the international stage, he said.

The former European commissioner joked to government colleagues earlier in the day that the fall of his government was "not the fault of the Mayas", referring to the end of a Mayan calendar which many believe foretold the end of the world on Friday.

The 69-year-old has won praise at home and abroad for rescuing Italy from the brink of bankruptcy, launching long-delayed pension and labour market reforms and joining other eurozone leaders in battling the debt crisis.

Monti announced he would step down earlier this month after his flamboyant predecessor Silvio Berlusconi withdrew his party's support for Monti's government in parliament and announced he would run for a fourth term as prime minister.

The government's mandate had been due to run out in April.

The current favourite in the opinion polls is centre-left leader Pier Luigi Bersani but things could change if Monti decides to join the campaign and back a coalition of small centrist parties as some local media have been reporting.

A former economy minister and leader of the Democratic Party, the cigar-chomping ex-communist Bersani, 61, has promised to stick to Monti's reforms but also do more to bring down unemployment and to tax the rich.

Monti's name cannot officially be on the ballot as he is already a senator for life, but the former economics professor can still be appointed to a post in government including prime minister or finance minister after elections.

Sources close to the technocrat premier insist he has not yet decided whether to join the fray, despite appearing to launch a bid for a weighty role in the campaign with a rousing speech at a Fiat factory on Thursday.

"I think it would be irresponsible to waste all the sacrifices that Italians made," he said after sniping from Berlusconi who has promised to put an end to austerity measures and to abolish a property tax introduced by Monti.

After taming the markets and bringing down bond rates from more than 7.0 percent when he started out to just over 4.0 percent this week, he also defended his "bitter medicine" saying a simple aspirin could not cure Italy.

Markets were cautious on Friday, with the Milan stock exchange closing 0.40 percent lower and the yield on sovereign bonds rising slightly.

The business world and the Catholic Church have been hugely supportive of Monti but his popularity has been hit among ordinary Italians as the debt-laden country grapples with record-high unemployment and a recession-hit economy.

Monti was installed by president and parliament as the head of an emergency technocratic government in November 2011 after the larger than life Berlusconi was forced to step down amid a financial crisis and a slew of sex scandals.

Many Italians breathed a sigh of relief at their country no longer being an international laughing stock but Monti's popularity rating has fallen to around 30 percent in recent months compared to more than 60 percent when he started.

Bersani has cautioned Monti against running, as has the 76-year-old billionaire Berlusconi who said the outgoing prime minister risked becoming a "small player" on the political scene if he allied with "little parties".

Berlusconi has stepped up his campaign by taking to the airwaves in recent days ,often on channels owned by his media empire. This would be the veteran politician's sixth bid for public office in two decades in politics.

Monti "has bowed down in front of EU requests, particularly those of the 'German European Union' of northern Europe, which only lead to recession," Berlusconi said on Friday in an interview with Gr Parliament radio.

The party lover was convicted of tax fraud in October and is a defendant in a trial for having sex with an underage prostitute and abuse of office. Berlusconi denies all charges.