Europe hails great Monti as Italy crisis hits markets

European partners heaped praise on outgoing Italian Prime Minister Mario Monti on Monday, and called for the next government to stick to his reform agenda after his surprise decision to resign rattled financial markets.

Monti's weekend announcement that he would step down early - made after former Prime Minister Silvio Berlusconi's PDL party withdrew its support for his technocrat government - pushed up Italy's borrowing costs and prompted a stock market sell-off.

The campaign for an election expected in February is likely to be fought over Monti's reform agenda, which Berlusconi said had condemned Italy to recession and forced him reluctantly to run for a fifth term as prime minister.

By contrast, senior Europeans warned that Monti's policies must continue to prevent a return of the crisis which brought him to power a year ago to avert a Greek-style collapse.

"Monti was a great prime minister of Italy and I hope that the policies he put in place will continue after the elections," European Council President Herman Van Rompuy said in Oslo, where he was part of a European Union delegation receiving the Nobel Peace Prize.

The comments echoed similar remarks in the past two days from European policymakers ranging from French Foreign Minister Laurent Fabius to the head of the European bailout fund Klaus Regling and European Commission President Jose Manuel Barroso.

Spanish Economy Minister Luis de Guindos warned that instability in Italy could spill over and put Spain's fragile public finances at risk of further turmoil.

After several weeks of calm, markets bridled at the prospect of Berlusconi's return to lead the center-right, just over a year after a financial crisis drove the scandal-plagued billionaire from office to be replaced by Monti's technocrats.

Opinion polls suggest Berlusconi has little chance of re-election. The center-left Democratic Party (PD) under Pier Luigi Bersani holds a strong lead and is likely to form the next government on a broadly pro-European platform, largely in line with Monti's agenda.

Read more: Europe hails great Monti as Italy crisis hits markets | Reuters