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1:34pm: Turning attention away from Berlusconi temporarily and back to Greece - I'm afraid we must report that the talks on the formation of a coalition government have hit a snag -- the favourite candidate to replace George Papandreou isn't even in Greece.
Helena Smith, our Athens correspondent, tells me that Lucas Papademos, the front-runner for the job and former vice president of the European Central Bank, is now racing back to his homeland. This threatens to delay the vital process of choosing the new leader.
Helena reports that:
The 64-year-old Papademos was in the US when he was informed of the ground-breaking political developments in Greece and is now making his way back to Athens poste-haste.
Formally the governor of the Bank of Greece for almost eight years, from October 1994 to May 2004, Papademos is widely regarded as a "neutral figure," who is well respected in Europe and would be a safe pair of hands at the helm of government. But friends who know him well have told our correspondent that Papademos, who is also a well-respected academic, is unlikely to agree to the job without carefully weighing things up first.
"As things stand, the leaders of both political parties want to give him his cabinet, tell him what to do and let him go by the end of January. It's a recipe for disaster," said Stefanos Manos a former conservative finance minister.
"Lucas is a thoughtful person, an honest guy, a clever person but he's also very cautious ... he's going to want to lay down his terms and as they stand I very much doubt that he will accept. I don't think for a moment he is willing to be a puppet PM."
The confusion may well mean that nothing is decided before this evening, when markets in Europe have already closed and Wall Street could be getting edgy.
So in short -- Greece is far from getting a government that will guarantee political stability.
1.05pm: What a dramatic few hours in the European debt crisis. Here's a round-up of the key events so far:
• Silvio Berlusconi has denied planning to resign today. The embattled Italian PM insisted that he remains in charge -- apparently after talks with his children
• Italy's borrowing costs have spiked alarmingly, suggesting that the country could soon be dragged deeper into Europe's financial crisis. The yield on 10-year Italians debt hit 6.66% this morning - devilishly bad news for Berlusconi?
• Greece remains in political limbo, as talks continue over the creation of a unity government. George Papandreou, and his old rival and US college friend Antonis Samaras, are locked in negotiations
• France promises more austerity. Another €7bn of tax rises and spending cuts announced today
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