Berlusconi takes foreign portfolio after resignation over euro policy

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Cabinet split reopens over political case for the euro

Silvio Berlusconi, Italy's Prime Minister, was sworn in as interim Foreign Minister yesterday after a colossal row over European policy exposed irreconcilable differences with the departing minister, Renato Ruggiero.

Mr Ruggiero had been under fire from the more Eurosceptic ministers for months, but the introduction of the euro and his criticism of the lacklustre response of his cabinet colleagues proved the last straw.

His resignation on Saturday has provoked a barrage of criticism from the opposition and caused consternation among Italy's European neighbours. Commentators said the loss of Mr Ruggiero, a former head of the World Trade Organisation and one of Italy's most experienced diplomats, is a blow to national credibility abroad at a time when it is demanding a greater role.

Mr Berlusconi will oversee foreign policy until a new minister is found. A government source said this could take some time. Among the possible candidates are Gianfranco Fini, a former fascist leader and deputy prime minister, Franco Frattini, the Public Affairs Minister, and Rocco Buttig-lione, the European Affairs Minister.

The right-wing government only tolerated Mr Ruggiero ­ who was imposed by President Carlo Azeglio Ciampi and Giovanni Agnelli, the honorary president of Fiat ­ and he has been isolated as the government has taken a pro-sovereignty swerve. His colleagues' lukewarm welcome of the single currency last week, for which there were no official celebrations, prompted Mr Ruggiero to criticise their Eurosceptic positions. Mr Berlusconi retorted that he was in charge of foreign policy, reminding Mr Ruggiero that he was a mere technocrat.

Mr Agnelli said it was a "dark day for Italy" and warned that the "government would regret it even more than they now realised". In an interview with la Repubblica newspaper, he said the presence of Mr Ruggiero in the Cabinet "made all the others more palatable in European terms".

Umberto Bossi, the leader of the xenophobic Northern League and Minister for Reform, was jubilant, saying the resignation of Mr Ruggiero showed Mr Berlusconi "had balls" and that the row preceding the resignation was "part of a plot by the left against us and Berlusconi".

The Olive Tree coalition has described Mr Ruggiero's departure as a victory for the Eurosceptic positions of Mr Bossi and Giulio Tremonti, the Treasury Minister, which risked leaving Italy stranded.

Italian foreign policy for the past half century has been determinedly pro-European and largely bipartisan. But since Mr Berlusconi's election last May, his team has been giving more antagonistic signals. It risked scuppering the keystone of EU anti-terrorism measures by rejecting Europe-wide arrest warrants (Critics said this was to protect Mr Berlusconi, who is under investigation by Spanish judges). And it decided in October, without consulting Mr Ruggiero, to drop its plan to buy 16 Airbus A400M military transport planes.

A conservative commentator and former diplomat, Sergio Romano, said Mr Berlusconi must now tell the country what policy he intended to pursue towards Europe, "After what has happened the uncertainty and ambiguity over past months over important issues is no longer tolerable" he said.

The resignation came as Italy was trying to drag itself up from its laggard status in introducing the euro. On Saturday the European Commission said Italy was still in last place in euro cash transactions, alongside France and Spain. They were less than 50 per cent against a eurozone average of 55 per cent.

Retailers around Italy are reporting shortages of €5 and €10 notes and in Palermo, the Sicilian capital, even the small copper coins are running short. A national strike by bank employees today is likely to aggravate the euro shortage.