The future of Italian Prime Minister Silvio Berlusconi's government was increasingly in doubt Monday, as Italy's borrowing costs reached new highs amid unprecedented concerns over the country's ability to shore up its ailing economy.
Mr. Berlusconi flew to Milan to meet his children and Fedele Confalonieri, chairman of his Mediaset SpA television broadcaster, to discuss whether he should step down, according to people familiar with the matter. Giuliano Ferrara, editor of the conservative newspaper Il Foglio and a close associate of the premier, wrote on his newspaper's website that Mr. Berlusconi was likely to resign "within hours."
While resignation is a possibility, the prime minister is considering going to Parliament for a critical budget vote Tuesday, which could confirm he no longer commands a majority, the people said.
But Fabrizio Cicchitto, parliamentary whip for Mr. Berlusconi's center-right People of Liberty party, said he had spoken to the premier and that talk of any resignation was "groundless."
Amid the growing uncertainty, Italian 10-year government bond yields hit 14-year highs of about 6.67% on Monday, before easing slightly to 6.54%.
A spokesman for Mr. Berlusconi declined to comment. A Mediaset spokeswoman confirmed the premier was having lunch with his son, company vice-chairman Piersilvio Berlusconi, and his daughter, Marina Berlusconi, chair of the family's holding company Fininvest SpA, in addition to Mr. Confalonieri.
The premier's last-ditch moves come as several once-faithful members of his center-right party have threatened to vote against the government or abstain from voting Tuesday during a scheduled ballot on budget matters in the lower house of Parliament. Over the next few days, Mr. Berlusconi may also face a no-confidence vote, which—if the potential defectors stick to their guns—he could well lose, according to politicians on both sides of the spectrum.
When a government loses its parliamentary majority in Italy, the way forward is either to shuffle the administration's members, create an interim "technical" government charged with finishing urgent business, or to hold new elections.
If early elections are called, it is unclear who would step up to challenge the premier. The left-wing opposition is in disarray, and a group of centrist forces opposed to Mr. Berlusconi have a number of leaders who draw from disparate constituencies, from pro-Vatican forces to secularist ones. If a technical government is forged, many lawmakers have said former European Competition Commissioner Mario Monti could be tapped to take the helm. Mr. Monti hasn't responded to requests to comment.
"I fear we no longer have a parliamentary majority," Interior Minister Roberto Maroni said on a popular Sunday evening television talk show. Mr. Maroni, a member of the Northern League, a partner in Mr. Berlusconi's ruling coalition, added that he would be in favor of elections.
Mr. Berlusconi has survived many scrapes during his 18 years in politics, and he may well survive what is shaping up to be the most dangerous upheaval in his ranks since his latest term began in 2008.
Even if the government holds on, it is becoming clearer that—with his parliamentary majority constantly in doubt and amid rising international criticism—Mr. Berlusconi no longer has the ability to make serious policy moves. Those moves include, taking the crucial steps needed to remove Italy from the cross-hairs of the escalating European debt crisis. Italy's problems are likely to be a focus of discussion at Monday's meeting of euro-zone finance ministers in Brussels.
"Mr. Berlusconi may still be in office, but he has not been in power for some time," said Nicholas Spiro, a London-based sovereign-debt consultant.
The timing of a possible new period of political instability is particularly delicate. Mr. Berlusconi has promised world leaders—most recently at the Group of 20 industrial and developing nations' summit in Cannes—that he would push through an overhaul needed to reignite the euro-zone's third-largest economy after Germany and France, and to lower its debt.
The measures are, in the short term, aimed at quelling market fears that Italy is next in line to need a bailout from its European partners. Because of Italy's size, any bailout would be far more serious than the troubles in Greece, and would put Europe's currency union to the test.
European leaders haven't been persuaded by the Italian leader's promises. At the G-20, they exhorted him to stick to his commitments, which include loosening Italy's strict labor code, lightening the state's pension load and privatizing state assets. To make sure Italy is sticking to its pledge, officials from the International Monetary Fund are expected to arrive in Rome as early as Monday, according to people familiar with the matter, to oversee the efforts. The IMF's announcement Friday that Italy will become the first Group of Eight nation in decades to come under the fund's oversight was a further blow to Mr. Berlusconi's shaky governing coalition.
It also has given new impetus to his rivals. Thousands of protesters marched in Rome on Saturday demanding his resignation and calling for new leadership to steer the country out of crisis.
Saturday's rally, organized by the leftist Democratic Party, the biggest opposition force, drew a sea of demonstrators waving multicolored flags and calling on the premier to step down.
Democratic Party leader Pier Luigi Bersani and other opposition leaders have met several times in recent days with President Giorgio Napolitano, Italy's head of state, to discuss the economic crisis and the political gridlock. Those talks are being closely watched, because Mr. Napolitano has the power to dissolve Parliament if it becomes clear Mr. Berlusconi no longer has a strong enough majority to govern.
In the wake of the Rome protest, Mr. Berlusconi spoke Sunday on a telephone broadcast to a political rally held by one of his allies. In the call, he said his party had counted its votes in Parliament "with precision in these very hours" to verify that his majority was secure.
"Our friends who are leaving the majority in this moment are carrying out an act of treachery. Not against us, but against the country," Mr. Berlusconi said.
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