Feb. 14 - Markets take the prospect of the Italian prime minister resigning in their stride as they bank on a pro-reform replacement. And euro zone growth surprises. Joanna Partridge reports.
End of the road for Enrico Letta. Italy's prime minister drove himself to the presidential palace to resign on Friday. Letta's hand was forced after his government was criticised for failing to pass major reforms. That's despite euro zone figures showing Italy grew marginally last year for the first time since mid-2011, as economic growth returns to the rest of the bloc. Italian centre-left leader Matteo Renzi and his party withdrew their support for Letta, but Italians aren't sure what to expect. SOUNDBITE: Francesca, Passer-by, saying (Italian): "I don't understand what will change, I hope something will." SOUNDBITE: Giuseppe, Passer-by, saying (Italian): "What plans does Renzi have? We don't know what his policies are. He'll go there and what will he do?" 39-year-old Renzi leads the Democratic Party, the largest in the ruling coalition. He wants a more ambitious government to pull Italy out of a decade of sluggishness - and is expected to become the new prime minister. That may not mean big policy changes, says James Walston from the American University of Rome. SOUNDBITE: JAMES WALSTON, PROFESSOR OF ITALIAN AND COMPARATIVE POLITICS AT THE AMERICAN UNIVERSITY OF ROME, SAYING (English): "The policies that Renzi is going to follow will be very similar to those which Letta was trying to implement, in other ways it will be a big change in style. The style, we've seen already a difference in style between Letta and Renzi. Renzi is a much closer person in terms of style of leadership to the other two populists, the other two populists who are not in parliament - Berlusconi and Grillo." Italy's borrowing costs were largely unchanged after Letta's resignation, hovering around the 8-year lows seen in the past few days. Italy's President, Giorgio Napolitano will consult political parties on Friday and Saturday to form a new government - the third administration in a year. He'll want to avoid extended political uncertainty, which could unsettle investors. European shares rose on Friday thanks to stronger-than-expected euro zone growth figures, especially in Germany and France. But concerns remain about Greece - where unemployment hit a new record high of 28% this week - and other peripheral economies, says Phil Tyson from ICAP. SOUNDBITE (English) Phil Tyson, Head of Strategy for Interest Rate Products, ICAP, saying: "Greece and Portugal, there are still some key issues. I think there is a real risk that growth is going to disappoint, that the public are suffering from austerity fatigue. We've already seen certain reforms being blocked in Portugal. So I don't think we're out of the woods there by any means yet.'' The euro zone may be moving in the right direction - but more signs the fragile recovery is likely to be patchy and uneven.