By Gavin Jones
ROME, Dec 8 (Reuters) - Mario Monti, who announced on Saturday that he intended to resign after just over a year as Italy's prime minister, restored international credibility to his country and dragged it back from the brink of financial collapse.
The 69-year-old former European commissioner replaced the scandal-plagued Silvio Berlusconi in November last year as skyrocketing borrowing costs threatened to plunge Italy into a Greek-style debt crisis.
Now it is the withdrawal of Berlusconi's support in parliament that has prompted his decision to go once next year's budget is approved, a few months before polls expected in March.
Monti, who was known as the 'Italian Prussian' in Brussels where he made his name as an effective and intransigent competition commissioner, quickly won the admiration of Italy's partners and financial markets.
When Berlusconi pulled his party's backing for Monti's technocrat government on Dec. 6, the gap between Italy's benchmark bonds and safer German Bunds stood below 3.2 percentage points, little more than half the level when Monti took over.
With his economist's training and measured, sober manner Monti is often considered a very atypical Italian and was the perfect antidote to the discredited Berlusconi.
'We substituted the political model of the great salesman for the professor,' said media expert Alessandro Amadori.
His rapport with German Chancellor Angela Merkel was particularly crucial as for the first time in years Italy's view began to be taken seriously in European decision-making.
In a heady first few months that saw him named European of the year in the French parliament and feted by the international media he acted decisively to convince investors that Italy could bring its finances under control.
Capitalising on record approval ratings he rushed through 20 billion euros ($25.86 billion) of deficit cuts including a widely praised pension reform to raise the retirement age.
He lost much of that shine, at least domestically, as the months went on and the recession deepened while tax hikes piled up and subsequent reforms to deregulate services and the labour markets got bogged down and diluted by parliamentary and union opposition.
Lampooned as an emotionless robot on television, Italians may never have warmed to Monti as millions did to Berlusconi, but he was viewed as an austere professor who deserved respect.
'He was so good at school that he corrected his own homework because he didn't trust the teachers,' was a joke that summed up the attitude of most of his countrymen towards him.
Economists are divided over the quality of Monti's attempts to free up Italy's ossified economy and some say his austerity measures to restore investor confidence relied too much on tax hikes that hobbled an economy already in recession.
Yet he has undoubtedly begun to address deep-rooted problems that festered unattended for years and made Italy the most sluggish economy in Europe over the last decade.
Even though the recession has been far deeper than he forecast when he took office and unemployment has risen to record highs, Monti says he has administered painful medicine which will bring Italy benefits in the longer term.
And while his popularity has waned among ordinary Italians hit by higher taxes and spending cuts, he remains the darling of the international establishment and financial markets that want him to carry on after elections expected to be held in March.
Italian bond yields rose immediately when it became clear the government was in danger, a measure of Monti's standing with markets which probably has at least as much to do with his communication skills and credibility as his policies.
'In years to come, he'll be studied from a public relations point of view because he has had an extraordinarily sedative effect on international observers,' a senior central banker told Reuters.
Monti has said he will not run at the election but that does not mean he will withdraw from politics.
He has made it clear that he will be willing to carry on if the vote produces no clear majority - a far from remote possibility - or he could become head of state when Giorgio Napolitano's term of office ends next year.
Another possibility is that he will return to Brussels to replace Jose Manuel Barroso as commission president or Herman Van Rompuy as head of the European Council of EU leaders.
$1 = 0.7735 euros)
(Reporting by Gavin Jones; Editing by Stephen Powell) Keywords: ITALY MONTI/NEWSMAKER
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