For a country that so often moves at a mediaeval pace, it has been an whirlwind 24 hours in Italian politics.

After failing to carry a majority in the lower house yesterday, Prime Minister Silvio Berlusconi told President Giorgio Napolitano  he would resign, once he had ushered through parliament the economic reforms demanded by the European Union.

The 75-year-old leader is still called prime minister but the celebrations have already begun.

“I am the happiest woman in the world,” said Annarella, an elderly woman who courted the TV cameras outside parliament in Rome. “I don’t drink but I have to go out and get drunk.”

In Milan the mood was a little more sober. Said one woman: “Life is becoming more difficult. I think he should have resigned much sooner.” A local businessman said: “He needs to go immediately. The more time passes, the more damage is done.”

Jittery investors would seem to agree. On Wednesday we saw Italy’s bond yields breach the crucial 7% mark widely considered unsustainable and the tipping point at which Portugal, Greece and the Irish Republic were forced to seek a bailout. The 10-year Treasury bond yield topped 7.5% and the spread between against the German benchmark at one point bond widened to 574 basis points. Everyone was asking how much higher could it go.

”We are on the edge of an abyss,” said Emma Marcegaglia, the head of  Confindustria, the country’s most powerful employer organisation. “Italy is in a truly dramatic situation.”

The country’s longest-serving prime minister sought to pave the way for his preferred successor, former justice minister Angelino Alfano, the current head of his People of Freedom Party, while the markets continued to defy expectations.

Stock prices plunged and shares in the billionaire leader’s broadcast empire Mediaset fell more than 12%. In fact, trading in Mediaset shares was temporarily suspended after the company reported a 30% drop in nine-month operating profit and concern about declining advertising revenue.

In the middle of the mayhem, a delegation from the European Union and the European Central Bank was quietly touring ministerial offices in Rome with 39 questions aimed at keeping the pressure on the government to introduce  its reforms.

Civil Service Minister Renato Brunetta even filled out a questionnaire pledging to cut back “red tape” and modernise the public service. But the EU is far from convinced that Italy will adopt the measures needed to balance the budget in 2013.

As for modernising the Italian bureaucracy, I wouldn’t be holding my breath.

Then late in the day the president took the unusual step of announcing Italy would soon have a new government or he would call a snap election.

“Either a new government will be formed that can take every necessary decision with the confidence of Parliament or Parliament will be dissolved to start an election campaign that will be held within a very short time period,” Napolitano said in his statement.

Shortly after Napolitano appointed highly respected economist Mario Monti a senator for life. The former European Commissioner has already been mooted as a potential head of a technocratic government and the president’s move put him as the Italians say “in pole position” for the job of interim leader until elections are held.

Napolitano also sought to reassure financial markets and edgy European leaders such as German Chancellor Angela Merkel who called for more reforms from Italy earlier in the day. “We have to win back our credibility and trust as a country,” he said.

Now the government is fast tracking its latest package of reforms in the Senate on Friday and they could be passed by both houses before Sunday.

While reforms are likely to include asset sales and pension reform, the government is probably going to back away from the  easier dismissal of workers and minimise potential opposition from unions and other parties.

Once the legislation is through, Berlusconi’s days seem well and truly numbered and he could be gone within a week.

But since Berlusconi has dominated Italian politics for 17 years,  still the sceptics remain.

“I don’t believe my ears that it can be true,” one woman wrote on a Facebook site late Wednesday. “Believe me, he won’t resign!” said another.