Monti groomed to be Italy's new PM

The position is largely ceremonial, but does provide Monti with the necessary standing to head a country in peril.

Domestic press are speculating that the nomination is a prelude to being designated leader of a new government.

The move came after Napolitano had unsuccessfully sought to soothe anxious markets after Prime Minister Silvio Berlusconi announced his resignation on Tuesday evening.

Market jitters only increased the following day after a document was leaked in which the European Commission questioned the country’s capacity to meet a balanced budget by 2013.

The yield on Italian bonds shot through the roof on Wednesday, beyond the point at which Greece, Portugal and Ireland had been forced to seek financial aid.

The Standard & Poor’s Index 500 lost 3.7 percent, its worst drop in more than two months. Asian markets are almost five percent in the red.

“There is no doubt that the president of the council, the honourable Silvio Berlusconi, will step down after the approval of the stability law,” Napolitano said in a statement on Wednesday.

The law, which includes the austerity measures demanded by European leaders, he said would be approved “within days”. It is set to pass the Senate on Friday and the lower house at the weekend. A new government could be in place as soon as Monday.

Monti is an economist at Bocconi University in Milan, a Yale University graduate, and former two-time EU commissioner from 1995 to 2004 – responsible for the internal market and competition dossiers over his pair of terms in the EU executive.