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Berlusconi's gone - but Italy's big problems remain

Anadolu Agency | Anadolu Agency | Getty Images

Italian politician and three-time former Prime Minister Silvio Berlusconi might have been was expelled from parliament on Wednesday but analysts told CNBC that his absence won't make life easier for the Italian government.

The Senate voted 194 votes to 112 to expel Berlusconi amid dramatic scenes in the upper house Wednesday: Berlusconi's loyal core of female senators were dressed in mourning black while a fight broke out between two male senators.

Speaking to supporters of his Forza Italia party gathered outside his residence in Rome, Berlusconi said in typically dramatic fashion following the vote: "We are here on a bitter day, a day of mourning for democracy… "They [his Democratic Party opponents] are celebrating now as they send me, their enemy in front of an execution squad. . . This is a conviction that cries out for revenge before God and man."

(Read more: Berlusconi stands alone after party split)

Defiant as ever, Berlusconi vowed to lead his party from the fringes. "We have to stay in the field and we can't give up, even if the leader of the center-right is not a Senator anymore."

The Senate vote yesterday followed the 77-year-old veteran politician's sentencing in August to a two-year ban from holding public office and one year in prison for tax fraud, the latter punishment commuted to house arrest or community service due to his age (he chose the latter).

Senators applaud the vote on Wednesday
Franco Origlia | Getty Images News | Getty Images
Senators applaud the vote on Wednesday

On Thursday morning, the front cover of Italy's Il Giornale newspaper, owned by Berlusconi's brother, screamed the result heralded the "End of Liberty" and that the "Slaughter of Democracy" – the paper was quick to add, however, "Ma non finisce cosi" -- "It doesn't end here."

Indeed it doesn't. Berlusconi announced ahead of the vote that his party was joining the opposition, ending an awkward seven-month coalition with the center-left Democratic Party (PD) which now has a slim majority of just six seats in the Senate.

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

For its part, the PD's General Secretary Guglielmo Epifani called the Senate result "the right thing to do, otherwise we would have had the law of the jungle" and Prime Minister Enrico Letta also welcomed the result as it could weaken Berlusconi's ability to upset the government's reform agenda.

Letta said his government was "stronger and more cohesive" on Wednesday after it won a vote of confidence on the 2014 budget and he said it would press on with its reform program. The budget still has further to go, however, and must be approved by the end of the year.

It has already undergone numerous modifications to address European Union concerns over its ability to keep Italy within European deficit and debt reduction rules. The country's deficit level of 3 percent is threatening to go higher and above the European Union's limit, while Italy's debt as a proportion of its gross domestic product is the second-highest in the euro zone, after Greece, at 133 percent.

Though investors have been willing to forgive Italy its political trespasses so far this year and borrowing costs have remained stable, the euro zone's third-largest economy has been in a recession for 27 months and Letta's hopes could be misplaced, analysts warned.

"Italian politics has always been dysfunctional and Berlusconi's departure to the sidelines will do nothing to change that," Michael Hewson, chief market analyst at CMC Markets told CNBC on Thursday.

"If Mr Letta thinks the splits in Berlusconi's party will strengthen his government and his ability to carry out reforms then he is more optimistic than I am. There is currently no appetite for reform…and it is more probable that economic stagnation is the more likely outcome as vested interests block reform from either side of the political divide."

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

Elsewhere, the head of consultancy firm Spiro Sovereign Strategy told CNBC that Berlusconi had been a useful distraction for a weak government that would continue to struggle to implement reform.

"The expulsion of 'Il Cavaliere' from Italy's Senate is hardly a game-changer in Italian politics, which remains in a state of flux and is not conducive to the far-reaching fiscal and structural reforms Italy sorely needs to undertake," Nicholas Spiro told CNBC on Wednesday following the vote.

"Berlusconi's incessant scheming and brinkmanship have contributed to Italy's political and economic woes, but they were never the root cause of the country's ills," he added.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld

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