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Senate expels Berlusconi from Italian parliament

Italian politician and three-time former Prime Minister Silvio Berlusconi was expelled from parliament on Wednesday, following a vote in the Italian Senate.

The vote at around 4.15 p.m. London time followed the 77-year-old veteran politician's sentencing in August to one year in prison and a ban from politics for tax fraud—a punishment that was commuted to house arrest or community service due to his age.

Berlusconi's revamped Forza Italia party confirmed Tuesday that it would withdraw its support for the left-right coalition government headed by Enrico Letta, saying it disagreed with the administration's economic policy.

Despite withdrawing its support from the "grand coalition" formed just seven months ago, Letta should be able to stay in power, as he has the support of Deputy Prime Minister Angelino Alfano and his New Center Right (NCD) party—formed after Alfano and other moderates in Berlusconi's party "defected" earlier this month.

(Read more: Berlusconi 'party showdown' seen as doves and hawks collide)

TIZIANA FABI | AFP | Getty Images

The latest move to upset government stability follows attempts by Berlusconi to avoid parliamentary expulsion ahead of Wednesday's vote.

At the weekend, Italian President Giorgio Napolitano refused to grant Berlusconi a presidential pardon, saying in a statement that "conditions have not arisen" to grant him one and calling on Berlusconi to keep his protests "within the bounds of institutional respect and normal and dutiful legality."

Undeterred, Berlusconi insisted Monday that he could produce new evidence that could overturn his conviction for tax fraud.

Italy analysts believe that the writing is on the wall for Berlusconi, however. Prime Minister Enrico Letta's center-left Democratic Party (PD) and the anti-establishment 5-Star Movement (M5S) together will have enough votes to form a majority and secure an ejection.

(Read more: Silvio Berlusconi's 'greatest' hits)

"Berlusconi's political fate seems to be sealed," Wolfango Piccoli, managing director of research house Teneo Intelligence, said in a note to CNBC this week, "given that the Democratic Party, Five Star Movement, Civic Choice, and other smaller parties will align against him."

Losing his parliamentary seat would not preclude Berlusconi from leading his party but he would lose immunity from arrest and from being wiretapped by investigators. He faces at least two other criminal probes and appeals a conviction for paying for sex with an underage prostitute.

Double whammy

Berlusconi's party might have withdrawn its support of Letta for economic reasons, but the prime minister answered that declaration with his own show of political strength Tuesday.

Letta won a vote of confidence on the 2014 budget Tuesday evening, reinforcing the symbolic strength, at least, of his new alliance with his center-right allies under Alfano.

(Read more: Letta wins confidence vote as Berlusconi backs down)

The measure passed in the Senate shortly after midnight, 171-to-135, helped by the votes of rebel senators who broke away from Berlusconi earlier this month.

The 2014 budget has undergone numerous modifications to address European Commission concerns over its ability to keep Italy within European deficit and debt reduction rules.

The vote of confidence was called by Letta to prevent lengthy arguments over its contents, which must be approved before the end of the year. Tuesday's Senate vote on the first reading of the budget was not final approval of the bill, which must be passed by the end of the year.

(Read more: Berlusconi stands alone after party split)

While economic reforms have yet again increased political tensions, the euro zone's third-largest economy, which has been in a recession for 27 months, looks set to continue on its current path, an analyst at JPMorgan warned.

(Read more: Fears rise that Italy's 2014 budget could spark further trouble)

"Italian politics are more deeply troubled than they appear on the surface," Alex White said in a note Monday. "Previous periods of intense pressure have failed to catalyze meaningful change … and there has been little sign of structural improvement in the way the government functions."

"In our view, this has limited the possibilities for a broader economic reform agenda despite concern about debt sustainability," White added. "Italy could easily repeat the experience under Berlusconi in during the 1990s, with apparently reform-minded politicians coming to office, but momentum behind meaningful reform being lost."

—By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

Correction: This article has been corrected to reflect that the Italian Senate vote took place at around 4:15 p.m. GMT on Wednesday.

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