Pier Luigi Bersani and Silvio Berlusconi were followed into the presidential palace by outgoing Prime Minister Mario Monti, Northern League boss Roberto Maroni and finally the governors of Italy’s regions, in scenes that resembled schoolboys visiting the headmaster’s office.

The fact that Italy’s leading politicians had to implore an extremely reluctant 87-year-old grandfather to be the first president in Italian history to serve a second term is a measure of the depth of the most turbulent and intractable crisis seen for decades, even in a country synonymous with instability.

Since an election in February that left no group with enough support to govern alone, one political disaster had followed another like a motorway pile-up, culminating in the failure of 1007 “grand electors” from parliament and the regions to elect a new president after four attempts.

The political drama had implications far beyond Italy. The euro zone’s third biggest economy had once before narrowly avoided being sucked into the region’s financial crisis. Political gridlock brought renewed danger.

The group’s pleas flew in the face of Napolitano’s repeated and fierce rejection of the idea, going back months. With his 88th birthday two months away, the former communist was looking forward to retirement, playing with his two grandchildren and taking a holiday on the island of Capri with his wife Clio.

Napolitano was so sure of leaving that removal men had already taken away most of his personal effects. Sources with knowledge of the events inside the former papal palace on the Quirinal hill said his office was so bare that there were not even notebooks available when he received the delegations.

He had told his aides the night before that he expected to hand over the presidency within days, the sources said.

The presidential election was key to ending the two-month deadlock and installing Italy’s 64th post-war government with some hope of passing reforms vital to counter a deep recession, but the politicians were incapable of finding a way out of the impasse.

Napolitano eventually agreed to stand again, was overwhelmingly elected and has installed a right-left grand coalition under center-left politician Enrico Letta, bringing the crisis to an end, for now.

While fragile, the government is given a reasonable chance of lasting for a while at least, thanks mostly to the president’s powerful protection, and his threat to resign immediately if the politicians go back to playing games.

BRINK OF DISASTER

But before he conceded out of what close associates say was an overwhelming sense of duty and patriotism, Italy had come to the brink of disaster.

“Napolitano has been decisive. No other president would have had enough authority to impose a government. If it had not been for him we would now be in a major constitutional crisis,” said political science Professor Gianfranco Pasquino from Bologna’s Johns Hopkins University.

Napolitano’s phone started ringing on the night of Friday April 19, shortly after a major rebellion in Bersani’s center-left Democratic Party which sank his second candidate for president, former premier Romano Prodi, despite a unanimous party vote in a Rome theatre only that morning to support him.

Bersani had the most electors after beating Berlusconi’s center-right by a whisker in the February election but he had lost control of the party, which was close to collapse.

Bersani resigned that night, after railing against around 100 “traitors” who voted against Prodi, and was the first to make the pilgrimage to Napolitano.

Sources with knowledge of the meeting say Napolitano’s determination not to remain was weakened by the sorry sight of the broken Bersani. He was finally convinced by the pleas of the regional governors.

He was also very worried that public anger against the politicians, fuelled by the diatribes of populist 5-Star Movement leader Beppe Grillo, could become violent.

Napolitano had what one source described as an “animated” lunch with his wife and 43-year-old son Giulio, and finally at 3 p.m. agreed to stay on. But the drama was far from over.

Napolitano went to parliament for his inauguration on the Monday morning, eschewing the normal pomp reserved for the occasion. He angrily excoriated the chastened politicians, accusing them among other charges of irresponsibility, exploitation and sterile political battles.

He said their failure despite his repeated urgings last year to repeal a flawed electoral law that was largely responsible for the poll result was “unforgivable.”

Then, unveiling his biggest weapon, he told them he would not hesitate to resign, “if I find myself again confronted by the kind of deafness with which I have collided in the past.”

SURREAL SCENE

The reaction of the parliamentarians was little short of surreal. With the exception of Bersani, who held his head in his hands, the rest of the audience responded to their punishment with enthusiastic applause.

The astonishing scene was caricatured in La Stampa newspaper by columnist Massimo Gramellini who said the politicians were like motorists carrying a traffic policeman in triumph on their shoulders after he had given them a sheaf of parking fines.

One political official said Napolitano’s threat to resign was not an empty one. “His determination is very strong …if the politicians try to mock him with their games,” he said.

It was not long before Napolitano had to use this weapon.

Two days after his own inauguration, he nominated Letta as prime minister, but coalition horse trading with Berlusconi ran into trouble in a dispute over the position of economy minister.

Berlusconi wanted the job to go to his close ally, Renato Brunetta, a center-right hardliner, but that was opposed by Letta’s center-left. Political sources said Napolitano picked up the phone and called Berlusconi. One source says he threatened to resign if the dispute prevented a government being formed.

Berlusconi conceded, allowing the job to go to Bank of Italy director general Fabrizio Saccomanni.

High on Letta’s priorities are constitutional changes to fix the skewed electoral law, which grants a giant winner’s premium in the lower house of parliament even if the margin is tiny. It will be a long process and before it happens Napolitano has powerful leverage with his threat to resign or call a new poll.

So as in November 2011, when Napolitano rescued Italy from a perilous debt crisis by replacing the discredited Berlusconi with technocrat Mario Monti, Italy’s fate once again depends on the man affectionately known as “King George.”

But with the future deeply uncertain as far as the eye can see, Italians are wondering whether he will really be forced to stay for a full seven year term, by which time he will be 94, in order to keep the euro zone’s third-largest economy on track.

(Writing by Barry Moody; additional reporting by Paolo Biondi; editing by Janet McBride)

Pier Luigi Bersani and Silvio Berlusconi were followed into
the presidential palace by outgoing Prime Minister Mario Monti,
Northern League boss Roberto Maroni and finally the governors of
Italy’s regions, in scenes that resembled schoolboys visiting
the headmaster’s office.

The fact that Italy’s leading politicians had to implore an
extremely reluctant 87-year-old grandfather to be the first
president in Italian history to serve a second term is a measure
of the depth of the most turbulent and intractable crisis seen
for decades, even in a country synonymous with instability.

Since an election in February that left no group with enough
support to govern alone, one political disaster had followed
another like a motorway pile-up, culminating in the failure of
1007 “grand electors” from parliament and the regions to elect a
new president after four attempts.

The political drama had implications far beyond Italy. The
euro zone’s third biggest economy had once before narrowly
avoided being sucked into the region’s financial crisis.
Political gridlock brought renewed danger.

The group’s pleas flew in the face of Napolitano’s repeated
and fierce rejection of the idea, going back months. With his
88th birthday two months away, the former communist was looking
forward to retirement, playing with his two grandchildren and
taking a holiday on the island of Capri with his wife Clio.

Napolitano was so sure of leaving that removal men had
already taken away most of his personal effects. Sources with
knowledge of the events inside the former papal palace on the
Quirinal hill said his office was so bare that there were not
even notebooks available when he received the delegations.

He had told his aides the night before that he expected to
hand over the presidency within days, the sources said.

The presidential election was key to ending the two-month
deadlock and installing Italy’s 64th post-war government with
some hope of passing reforms vital to counter a deep recession,
but the politicians were incapable of finding a way out of the
impasse.

Napolitano eventually agreed to stand again, was
overwhelmingly elected and has installed a right-left grand
coalition under centre-left politician Enrico Letta, bringing
the crisis to an end, for now.

While fragile, the government is given a reasonable chance
of lasting for a while at least, thanks mostly to the
president’s powerful protection, and his threat to resign
immediately if the politicians go back to playing games.

BRINK OF DISASTER

But before he conceded out of what close associates say was
an overwhelming sense of duty and patriotism, Italy had come to
the brink of disaster.

“Napolitano has been decisive. No other president would have
had enough authority to impose a government. If it had not been
for him we would now be in a major constitutional crisis,” said
political science Professor Gianfranco Pasquino from Bologna’s
Johns Hopkins University.

Napolitano’s phone started ringing on the night of Friday
April 19, shortly after a major rebellion in Bersani’s
centre-left Democratic Party which sank his second candidate for
president, former premier Romano Prodi, despite a unanimous
party vote in a Rome theatre only that morning to support him.

Bersani had the most electors after beating Berlusconi’s
centre-right by a whisker in the February election but he had
lost control of the party, which was close to collapse.

Bersani resigned that night, after railing against around
100 “traitors” who voted against Prodi, and was the first to
make the pilgrimage to Napolitano.

Sources with knowledge of the meeting say Napolitano’s
determination not to remain was weakened by the sorry sight of
the broken Bersani. He was finally convinced by the pleas of the
regional governors.

He was also very worried that public anger against the
politicians, fuelled by the diatribes of populist 5-Star
Movement leader Beppe Grillo, could become violent.

Napolitano had what one source described as an “animated”
lunch with his wife and 43-year-old son Giulio, and finally at 3
p.m. agreed to stay on. But the drama was far from over.

Napolitano went to parliament for his inauguration on the
Monday morning, eschewing the normal pomp reserved for the
occasion. He angrily excoriated the chastened politicians,
accusing them among other charges of irresponsibility,
exploitation and sterile political battles.

He said their failure despite his repeated urgings last year
to repeal a flawed electoral law that was largely responsible
for the poll result was “unforgivable.”

Then, unveiling his biggest weapon, he told them he would
not hesitate to resign, “if I find myself again confronted by
the kind of deafness with which I have collided in the past.”

SURREAL SCENE

The reaction of the parliamentarians was little short of
surreal. With the exception of Bersani, who held his head in his
hands, the rest of the audience responded to their punishment
with enthusiastic applause.

The astonishing scene was caricatured in La Stampa newspaper
by columnist Massimo Gramellini who said the politicians were
like motorists carrying a traffic policeman in triumph on their
shoulders after he had given them a sheaf of parking fines.

One political official said Napolitano’s threat to resign
was not an empty one. “His determination is very strong …if
the politicians try to mock him with their games,” he said.

It was not long before Napolitano had to use this weapon.

Two days after his own inauguration, he nominated Letta as
prime minister, but coalition horse trading with Berlusconi ran
into trouble in a dispute over the position of economy minister.

Berlusconi wanted the job to go to his close ally, Renato
Brunetta, a centre-right hardliner, but that was opposed by
Letta’s centre-left. Political sources said Napolitano picked up
the phone and called Berlusconi. One source says he threatened
to resign if the dispute prevented a government being formed.

Berlusconi conceded, allowing the job to go to Bank of Italy
director general Fabrizio Saccomanni.

High on Letta’s priorities are constitutional changes to fix
the skewed electoral law, which grants a giant winner’s premium
in the lower house of parliament even if the margin is tiny. It
will be a long process and before it happens Napolitano has
powerful leverage with his threat to resign or call a new poll.

So as in November 2011, when Napolitano rescued Italy from a
perilous debt crisis by replacing the discredited Berlusconi
with technocrat Mario Monti, Italy’s fate once again depends on
the man affectionately known as “King George.”

But with the future deeply uncertain as far as the eye can
see, Italians are wondering whether he will really be forced to
stay for a full seven year term, by which time he will be 94, in
order to keep the euro zone’s third-largest economy on track.

Today that situation has turned 180 degrees. The center-left is devastated by divisions and the 76-year-old media tycoon has an opinion poll lead ranging from five to eight points.

The extraordinary upset is the result of powerful aftershocks from an electoral earthquake in February when the populist 5-Star Movement swept up a huge protest vote against Italy’s politicians and grabbed an unprecedented 25 percent to become the third force in parliament.

Now that the dust is starting to settle with the inauguration of a new broad-based coalition government led by center-left politician Enrico Letta, it is possible to see more clearly the winners and losers from one of the most turbulent periods in recent Italian political history.

One of the winners is Berlusconi.

He has gone from a pale, indecisive figure last autumn to a position of strong influence over Letta’s government, helped greatly by the implosion of the center-left and his own astonishing resurgence since he was forced from power in November 2011 as Italy faced a major financial meltdown.

The four-times former premier’s unrivalled political and communication skills, despite the reputational damage from a string of sex and corruption scandals, are in stark contrast to the bungles of hapless center-left leader Pier Luigi Bersani.

Berlusconi had consistently said since the election that a grand coalition was the only way out of a vote that ended with parliament divided three ways and no group able to govern alone.

He was also one of those pushing hardest for the re-election of President Giorgio Napolitano against the 87-year-old head of state’s own wishes, as the only way to end a two-month impasse since the election.

Berlusconi’s loyal protégé Angelino Alfano is Letta’s deputy and the billionaire businessman has effective power of life and death over the government, giving him strong leverage to push through the center-right’s policies led by abolition of a hated housing tax.

In his inaugural speech on Monday, Letta quickly nodded to this demand by blocking the next installment of the tax in June although he did not commit to abolishing it.

“Berlusconi can kill the government from one day to the next,” respected commentator Sergio Romano told Reuters.

This power is not unqualified, however.

Berlusconi has resisted heavy pressure from his own party hardliners to go straight to elections, because doing so with the current flawed electoral law could end up with him in the same situation as the center-left, which won a whisker thin majority in February but was then left unable to rule.

In addition, Berlusconi seems intent on projecting an image of statesmanlike restraint and responsibility.

The electorate is bitterly angry at the economic pain of a deep recession and demands immediate action to relaunch the economy rather than a return to uncertainty and electioneering.

Romano says Berlusconi has also not given up his ambition to be the next Italian president, with Napolitano very unlikely to continue for a full 7-year term.

BERSANI IS BIG LOSER

Undoubtedly the biggest loser is the colorless and uninspiring Democratic Party (PD) leader Bersani, who has resigned after seeing party rebels sabotage his two choices for president.

Bersani had already thrown away a commanding lead before the election and then obstinately pursued a policy of forging an alliance with Grillo, despite repeated rebuffs.

Bersani’s problem is at the core of why the center-left is falling apart. Its former communist left wing would not swallow the idea of allying with its traditional enemy Berlusconi and although it is now apparently reconciled to the Letta government, the party could still collapse at any time.

The biggest winner of all is President Napolitano, who has succeeded in fending off further uncertainty in a snap new election and installing the coalition government he wanted as a bulwark against Grillo’s anti-establishment party.

“Napolitano has been decisive. If it had not been for him we would now be in a major constitutional crisis,” Professor Gianfranco Pasquino of Johns Hopkins University told Reuters.

The former communist, dubbed “King George”, has reinforced his status as Italy’s most popular politician by far.

The whole formation of the Letta government is down to Napolitano’s protection and the assurances he wrung from the parties in exchange for his agreement to stay on as president.

Castigating politicians for their failures in his own inaugural speech a week ago, Napolitano clearly threatened to resign if they did not act responsibly and form a government.

Beppe Grillo’s storming success in February’s election may have been diluted since, although he remains a danger to the traditional politicians.

A series of missteps during the latest stage of the crisis, including some ill-judged inflammatory statements, may have lost him support and the formation of a credible government by establishment parties looks like a setback for him.

“Grillo is now sliding towards the losing side because he has not really used the parliamentary power he has in a very skilful way … he is losing popularity. It is not a good moment for him,” Pasquino said.

Success by Letta could further undermine Grillo.

Letta, 46, has always operated very much out of the limelight but he is a respected, pro-European politician from the Democratic Party’s right wing and his government does appear to meet many of the electorate’s demands for change.

He is the third youngest Italian prime minister, and his cabinet line-up has an average age of 53 in contrast to the much older composition of most governments. It also has a record number of 7 women ministers out of 21.

It contains many lesser known faces, meeting voters’ demands for the end of dominance by a corrupt political “caste.”

If Letta succeeds in maintaining unity in the uncomfortable left-right coalition, pushes through pro-growth policies, repeals the electoral law and makes other vital constitutional changes, he could pick up powerful momentum that would be bad news for Grillo.

“I am convinced Grillo’s votes are borrowed votes, protest votes, votes denied to somebody else. If the government does well, if the situation improves, if they change the trend of unemployment and Letta gains popularity, Grillo’s votes will melt away,” Romano said.

Letta’s momentum could also be bad news for Florence mayor Matteo Renzi, 38, who had seemed set to be the center-left’s candidate in new elections but faces a far more difficult potential target in Letta than Bersani, as long as the new prime minister survives.

While Renzi remains a potential game changer as a dynamic and articulate politician, he may now have to wait longer before he can move to center-stage although he is still in pole position to take over the PD leadership from Bersani at a vote in the autumn.

(Editing by Giles Elgood)

Today that situation has turned 180 degrees. The centre-left is devastated by divisions and the 76-year-old media tycoon has an opinion poll lead ranging from five to eight points.

The extraordinary upset is the result of powerful aftershocks from an electoral earthquake in February when the populist 5-Star Movement swept up a huge protest vote against Italy’s politicians and grabbed an unprecedented 25 percent to become the third force in parliament.

Now that the dust is starting to settle with the inauguration of a new broad-based coalition government led by centre-left politician Enrico Letta, it is possible to see more clearly the winners and losers from one of the most turbulent periods in recent Italian political history.

One of the winners is Berlusconi.

He has gone from a pale, indecisive figure last autumn to a position of strong influence over Letta’s government, helped greatly by the implosion of the centre-left and his own astonishing resurgence since he was forced from power in November 2011 as Italy faced a major financial meltdown.

The four-times former premier’s unrivalled political and communication skills, despite the reputational damage from a string of sex and corruption scandals, are in stark contrast to the bungles of hapless centre-left leader Pier Luigi Bersani.

Berlusconi had consistently said since the election that a grand coalition was the only way out of a vote that ended with parliament divided three ways and no group able to govern alone.

He was also one of those pushing hardest for the re-election of President Giorgio Napolitano against the 87-year-old head of state’s own wishes, as the only way to end a two-month impasse since the election.

Berlusconi’s loyal protégé Angelino Alfano is Letta’s deputy and the billionaire businessman has effective power of life and death over the government, giving him strong leverage to push through the centre-right’s policies led by abolition of a hated housing tax.

In his inaugural speech on Monday, Letta quickly nodded to this demand by blocking the next instalment of the tax in June although he did not commit to abolishing it.

“Berlusconi can kill the government from one day to the next,” respected commentator Sergio Romano told Reuters.

This power is not unqualified, however.

Berlusconi has resisted heavy pressure from his own party hardliners to go straight to elections, because doing so with the current flawed electoral law could end up with him in the same situation as the centre-left, which won a whisker thin majority in February but was then left unable to rule.

In addition, Berlusconi seems intent on projecting an image of statesmanlike restraint and responsibility.

The electorate is bitterly angry at the economic pain of a deep recession and demands immediate action to relaunch the economy rather than a return to uncertainty and electioneering.

Romano says Berlusconi has also not given up his ambition to be the next Italian president, with Napolitano very unlikely to continue for a full 7-year term.

BERSANI IS BIG LOSER

Undoubtedly the biggest loser is the colourless and uninspiring Democratic Party (PD) leader Bersani, who has resigned after seeing party rebels sabotage his two choices for president.

Bersani had already thrown away a commanding lead before the election and then obstinately pursued a policy of forging an alliance with Grillo, despite repeated rebuffs.

Bersani’s problem is at the core of why the centre-left is falling apart. Its former communist left wing would not swallow the idea of allying with its traditional enemy Berlusconi and although it is now apparently reconciled to the Letta government, the party could still collapse at any time.

The biggest winner of all is President Napolitano, who has succeeded in fending off further uncertainty in a snap new election and installing the coalition government he wanted as a bulwark against Grillo’s anti-establishment party.

“Napolitano has been decisive. If it had not been for him we would now be in a major constitutional crisis,” Professor Gianfranco Pasquino of Johns Hopkins University told Reuters.

The former communist, dubbed “King George”, has reinforced his status as Italy’s most popular politician by far.

The whole formation of the Letta government is down to Napolitano’s protection and the assurances he wrung from the parties in exchange for his agreement to stay on as president.

Castigating politicians for their failures in his own inaugural speech a week ago, Napolitano clearly threatened to resign if they did not act responsibly and form a government.

Beppe Grillo’s storming success in February’s election may have been diluted since, although he remains a danger to the traditional politicians.

A series of missteps during the latest stage of the crisis, including some ill-judged inflammatory statements, may have lost him support and the formation of a credible government by establishment parties looks like a setback for him.

“Grillo is now sliding towards the losing side because he has not really used the parliamentary power he has in a very skilful way … he is losing popularity. It is not a good moment for him,” Pasquino said.

Success by Letta could further undermine Grillo.

Letta, 46, has always operated very much out of the limelight but he is a respected, pro-European politician from the Democratic Party’s right wing and his government does appear to meet many of the electorate’s demands for change.

He is the third youngest Italian prime minister, and his cabinet line-up has an average age of 53 in contrast to the much older composition of most governments. It also has a record number of 7 women ministers out of 21.

It contains many lesser known faces, meeting voters’ demands for the end of dominance by a corrupt political “caste.”

If Letta succeeds in maintaining unity in the uncomfortable left-right coalition, pushes through pro-growth policies, repeals the electoral law and makes other vital constitutional changes, he could pick up powerful momentum that would be bad news for Grillo.

“I am convinced Grillo’s votes are borrowed votes, protest votes, votes denied to somebody else. If the government does well, if the situation improves, if they change the trend of unemployment and Letta gains popularity, Grillo’s votes will melt away,” Romano said.

Letta’s momentum could also be bad news for Florence mayor Matteo Renzi, 38, who had seemed set to be the centre-left’s candidate in new elections but faces a far more difficult potential target in Letta than Bersani, as long as the new prime minister survives.

While Renzi remains a potential game changer as a dynamic and articulate politician, he may now have to wait longer before he can move to centre-stage although he is still in pole position to take over the PD leadership from Bersani at a vote in the autumn.

(Editing by Giles Elgood)

Centre-left deputy leader Enrico Letta, 46, on Wednesday accepted a mandate from President Giorgio Napolitano to form a broad-based coalition government, which is expected to be a mix of technocrats and politicians.

However, even before Letta was chosen, two months after an inconclusive February election, there were danger signs from the centre-right bloc of Silvio Berlusconi, which tried to set pre-conditions for the new government. Letta also faces risks from deep divisions in his own centre-left.

Following is a review of the scenarios for the short and medium term and the possible obstacles to a period of stability long enough to allow Italy to pass vital reforms.

DANGERS FOR NEW GOVERNMENT

Letta, an urbane pro-European career politician, is expected to announce a mix of technocrat and political ministers by the weekend, with a vote of confidence by early next week.

Both Letta’s own centre-left and Berlusconi’s centre-right, plus the centrists of outgoing technocrat Prime Minister Mario Monti, have promised support for a broad government.

The ministers could include members of Monti’s government or of the two commissions of “sages” that Napolitano set up last month to propose reforms to mend the broken political system and address a chronic recession that has stoked public anger.

However, even before Letta was named, Renato Brunetta, lower house leader of Berlusconi’s People of Freedom (PDL) party, said they would only back a new government if promised to scrap a hated housing tax introduced by Monti, a suggestion seen as a non-starter both on the left and among many economists.

The statement immediately impacted markets with Italy’s 10-year bond yields rising slightly. Letta said he would not form a government “at any cost”, warning there must be compromises.

However, although the PDL position could spell trouble for Letta in the future, it is unlikely to prevent the formation of a government.

Napolitano, 87, who was reluctantly re-elected last weekend, has emerged from the turmoil with his power greatly enhanced compared to the previous few months, when as an outgoing president his arms were constitutionally tied.

Now he not only has the big stick of being able to call a snap election, which many politicians want to avoid, but has forced the party leaders to give him solid assurances of cooperation after they begged him to stay on – something he pointedly reminded them of after giving Letta his mandate.

He has threatened to resign if the politicians do not act more responsibly.

Brunetta’s remarks were an acid reminder, however, that the Monti government struggled to pass legislation and finally fell apart because of sharp differences between the centre-left and centre-right who supported it in parliament.

In addition, Berlusconi is riding high on the back of turmoil and division in the centre left, and has an eight-point opinion poll lead. He could pull the plug on a new government after a few months if he doesn’t get his way.

Perhaps just as dangerous for Letta is the disarray in his own Democratic Party, which has come close to disintegration in the last week, with leader Pier Luigi Bersani resigning after rebels sabotaged his two choices for new Italian president.

There is open factional warfare inside the party which could make it difficult for Letta to rely on leftwing votes in parliament.

The former communist left wing of the party also opposes any coalition with Berlusconi, who faces a string of scandals, and divisions over this were at the centre of Bersani’s troubles.

A section of the party could split off to join the leftist SEL party of Puglia governor Nichi Vendola in a new grouping.

Vendola, Bersani’s ally in the February election, has already broken away and could move towards an opposition alliance with the third force in parliament, Beppe Grillo’s populist 5-Star Movement, whose stunning success in the February election was one of the reasons for the current impasse.

If the government does get under way and builds momentum, its priorities will be policies to restore growth to a chronically stagnant economy, stimulate employment and reform a dysfunctional electoral law which is one of the main reasons for the long deadlock since February.

Estimates of the life of the new government vary between one and two years – if it survives at all.

A common prediction is that a new election could be held in June 2014, coinciding with European polls and saving money for Italy, which has one of the world’s biggest public debts.

WINNERS AND LOSERS

By far the biggest loser is Bersani, an amiable but colourless politician whose string of errors have destroyed his career. He is said to be a broken man.

The biggest winner looks like Berlusconi, who is riding high, having overtaken the centre-left at the top of the opinion polls and projecting an image of statesmanlike restraint as Bersani’s party falls apart. He had been calling for a broad based grand coalition for weeks.

It is an extraordinary reversal of fortunes from as recently as last November when Berlusconi looked like he was finished, with his party fractured and Bersani holding a 10-point lead in opinion polls.

Berlusconi, 76, has long been acknowledged as one of Italy’s most skilful politicians, with enviable communication skills complemented by his television empire. Bersani has proved to be one of the worst.

However, Berlusconi will face a dilemma over whether to force an election while he is front, with all the risks of the current electoral law, or wait and allow Letta to build momentum and possibly mend rifts on the left.

Another winner looks like being Matteo Renzi, the 38-year-old mayor of Florence, an outspoken opponent of Bersani and who, in contrast, is a dynamic and effective politician.

His success is not unqualified. Berlusconi quickly torpedoed him when his name emerged on Tuesday as a possible new prime minister. But Bersani’s decline and the discrediting of his leftist ruling clique has made Renzi more and more popular and he is the most likely next leader of the PD.

In any case, Renzi needs time to set himself up as the centre-left candidate in the next election which he is believed to want in about a year.

Renzi has long been seen as a game changer with the skills to defeat Grillo’s rabble rousing tactics – unlike Bersani – and also attract a big chunk of centre-right voters.

But it remains to be seen whether a centre-left robbed of its left wing, which opposes Renzi, would be strong enough to defeat Berlusconi and Grillo in a new election.

Whether Grillo is a winner or loser from all this is the subject of debate, but there are signs he may be losing traction after a disappointing result in a regional vote last weekend.

Certainly, after weeks of perfect tactics he made a major blunder last Saturday by calling for a “march on Rome” to oppose what he denounced as an establishment stitch-up to re-elect Napolitano.

The inflammatory language, which evoked images of the march on Rome by fascist leader Benito Mussolini in 1922, was widely condemned.

Whatever happens, one man stands out as an unrivalled hero. Napolitano, dubbed “King George”, has once again pulled the country back from the brink of disaster and consolidated his position as far and away its most popular politician.

iting by Giles Elgood)

Center-left deputy leader Enrico Letta, 46, on Wednesday accepted a mandate from President Giorgio Napolitano to form a broad-based coalition government, which is expected to be a mix of technocrats and politicians.

However, even before Letta was chosen, two months after an inconclusive February election, there were danger signs from the center-right bloc of Silvio Berlusconi, which tried to set pre-conditions for the new government. Letta also faces risks from deep divisions in his own center-left.

Following is a review of the scenarios for the short and medium term and the possible obstacles to a period of stability long enough to allow Italy to pass vital reforms.

DANGERS FOR NEW GOVERNMENT

Letta, an urbane pro-European career politician, is expected to announce a mix of technocrat and political ministers by the weekend, with a vote of confidence by early next week.

Both Letta’s own center-left and Berlusconi’s center-right, plus the centrists of outgoing technocrat Prime Minister Mario Monti, have promised support for a broad government.

The ministers could include members of Monti’s government or of the two commissions of “sages” that Napolitano set up last month to propose reforms to mend the broken political system and address a chronic recession that has stoked public anger.

However, even before Letta was named, Renato Brunetta, lower house leader of Berlusconi’s People of Freedom (PDL) party, said they would only back a new government if promised to scrap a hated housing tax introduced by Monti, a suggestion seen as a non-starter both on the left and among many economists.

The statement immediately impacted markets with Italy’s 10-year bond yields rising slightly. Letta said he would not form a government “at any cost”, warning there must be compromises.

However, although the PDL position could spell trouble for Letta in the future, it is unlikely to prevent the formation of a government.

Napolitano, 87, who was reluctantly re-elected last weekend, has emerged from the turmoil with his power greatly enhanced compared to the previous few months, when as an outgoing president his arms were constitutionally tied.

Now he not only has the big stick of being able to call a snap election, which many politicians want to avoid, but has forced the party leaders to give him solid assurances of cooperation after they begged him to stay on – something he pointedly reminded them of after giving Letta his mandate.

He has threatened to resign if the politicians do not act more responsibly.

Brunetta’s remarks were an acid reminder, however, that the Monti government struggled to pass legislation and finally fell apart because of sharp differences between the center-left and center-right who supported it in parliament.

In addition, Berlusconi is riding high on the back of turmoil and division in the center left, and has an eight-point opinion poll lead. He could pull the plug on a new government after a few months if he doesn’t get his way.

Perhaps just as dangerous for Letta is the disarray in his own Democratic Party, which has come close to disintegration in the last week, with leader Pier Luigi Bersani resigning after rebels sabotaged his two choices for new Italian president.

There is open factional warfare inside the party which could make it difficult for Letta to rely on leftwing votes in parliament.

The former communist left wing of the party also opposes any coalition with Berlusconi, who faces a string of scandals, and divisions over this were at the center of Bersani’s troubles.

A section of the party could split off to join the leftist SEL party of Puglia governor Nichi Vendola in a new grouping.

Vendola, Bersani’s ally in the February election, has already broken away and could move towards an opposition alliance with the third force in parliament, Beppe Grillo’s populist 5-Star Movement, whose stunning success in the February election was one of the reasons for the current impasse.

If the government does get under way and builds momentum, its priorities will be policies to restore growth to a chronically stagnant economy, stimulate employment and reform a dysfunctional electoral law which is one of the main reasons for the long deadlock since February.

Estimates of the life of the new government vary between one and two years – if it survives at all.

A common prediction is that a new election could be held in June 2014, coinciding with European polls and saving money for Italy, which has one of the world’s biggest public debts.

WINNERS AND LOSERS

By far the biggest loser is Bersani, an amiable but colorless politician whose string of errors have destroyed his career. He is said to be a broken man.

The biggest winner looks like Berlusconi, who is riding high, having overtaken the center-left at the top of the opinion polls and projecting an image of statesmanlike restraint as Bersani’s party falls apart. He had been calling for a broad based grand coalition for weeks.

It is an extraordinary reversal of fortunes from as recently as last November when Berlusconi looked like he was finished, with his party fractured and Bersani holding a 10-point lead in opinion polls.

Berlusconi, 76, has long been acknowledged as one of Italy’s most skilful politicians, with enviable communication skills complemented by his television empire. Bersani has proved to be one of the worst.

However, Berlusconi will face a dilemma over whether to force an election while he is front, with all the risks of the current electoral law, or wait and allow Letta to build momentum and possibly mend rifts on the left.

Another winner looks like being Matteo Renzi, the 38-year-old mayor of Florence, an outspoken opponent of Bersani and who, in contrast, is a dynamic and effective politician.

His success is not unqualified. Berlusconi quickly torpedoed him when his name emerged on Tuesday as a possible new prime minister. But Bersani’s decline and the discrediting of his leftist ruling clique has made Renzi more and more popular and he is the most likely next leader of the PD.

In any case, Renzi needs time to set himself up as the center-left candidate in the next election which he is believed to want in about a year.

Renzi has long been seen as a game changer with the skills to defeat Grillo’s rabble rousing tactics – unlike Bersani – and also attract a big chunk of center-right voters.

But it remains to be seen whether a center-left robbed of its left wing, which opposes Renzi, would be strong enough to defeat Berlusconi and Grillo in a new election.

Whether Grillo is a winner or loser from all this is the subject of debate, but there are signs he may be losing traction after a disappointing result in a regional vote last weekend.

Certainly, after weeks of perfect tactics he made a major blunder last Saturday by calling for a “march on Rome” to oppose what he denounced as an establishment stitch-up to re-elect Napolitano.

The inflammatory language, which evoked images of the march on Rome by fascist leader Benito Mussolini in 1922, was widely condemned.

Whatever happens, one man stands out as an unrivalled hero. Napolitano, dubbed “King George”, has once again pulled the country back from the brink of disaster and consolidated his position as far and away its most popular politician.

(Editing by Giles Elgood)

The prime minister designate is expected to quickly select a
group of ministers, mixed between politicians and technocrats,
under the guidance of Napolitano, whose own unprecedented
re-election last weekend opened the way for an end to the
crisis.

The new government led by Letta, a former Christian Democrat
from the right wing of his Democratic Party (PD), could go to
parliament for a vote of confidence by this weekend.

Formation of a government after two months of turbulent
political impasse will send a signal that Italy might at last be
ready to make a start on much-needed reforms.

Accepting his mandate, Letta said he was surprised by the
nomination and felt the profound responsibility on his
shoulders.

Italy faced a “difficult and fragile” situation which could
not continue and the government must provide answers on jobs,
poverty and the crisis facing small businesses in a deep
recession, he said.

He added that European economic policies have been too
focused on austerity instead of growth.

Napolitano’s choice of Letta instead of veteran former Prime
Minister Giuliano Amato, who was said to have been his original
favourite, indicated he had plumped for a more political figure
who reflects a generational change in Italian politics.

Letta, an urbane moderate who speaks fluent English, is 46
against Amato’s 74 and is an elected member of parliament unlike
the older, more experienced man.

He will be the second youngest prime minister in Italian
history and as a staunch pro-European is likely to be welcomed
by foreign governments and markets.

The new government will be backed primarily by Letta’s
centre-left and the centre-right of Silvio Berlusconi, which had
hitherto failed to cut a deal following inconclusive elections
in late February.

MARKET RELIEF

Investors have already reacted with relief to the prospect
of an end to the intractable crisis, with Italy’s borrowing
costs on Wednesday tumbling to their lowest level since the
start of European monetary union in 1999.

However, the country’s problems are not over, with
significant differences remaining between left and right over
economic policy.

These were put sharply into focus even before Letta was
chosen when Renato Brunetta, house leader for Berlusconi’s PDL
party, said they would only support a government committed to
repealing a hated housing tax introduced by outgoing technocrat
premier Mario Monti and paying it back.

The centre-left agrees only to a partial reduction of the
tax and many economists say such a move would leave a gaping
hole in Italy’s public accounts.

But Napolitano, who reluctantly agreed to serve another term
as president, has made clear that he will brook no more endless
squabbling between the parties and has threatened to resign if
they do not unite behind economic policies and important
constitutional reforms.

Chief among these is the repeal of a dysfunctional electoral
law which was largely responsible for the post election impasse.

Letta, the nephew of Berlusconi’s long-time chief of staff
Gianni Letta, is close to former party leader Pier Luigi
Bersani, who resigned at the weekend after rebels sabotaged him
in the voting for a new president.

Berlusconi’s People of Freedom (PDL) party, Letta’s PD and
Monti’s centrist Civic Choice movement had all said they would
cooperate with whomever Napolitano chooses.

“Given the crisis the country finds itself in, the country
needs a strong, a durable government that can make important
decisions,” Berlusconi said after meeting Napolitano on Tuesday.

The prime minister designate is expected to quickly select a
group of ministers, mixed between politicians and technocrats,
under the guidance of Napolitano, whose own unprecedented
re-election last weekend opened the way for an end to the
crisis.

The new government led by Letta, a former Christian Democrat
from the right wing of his Democratic Party (PD), could go to
parliament for a vote of confidence by this weekend.

Formation of a government after two months of turbulent
political impasse will send a signal that Italy might at last be
ready to make a start on much-needed reforms.

Accepting his mandate, Letta said he was surprised by the
nomination and felt the profound responsibility on his
shoulders.

Italy faced a “difficult and fragile” situation which could
not continue and the government must provide answers on jobs,
poverty and the crisis facing small businesses in a deep
recession, he said.

He added that European economic policies have been too
focused on austerity instead of growth.

Napolitano’s choice of Letta instead of veteran former Prime
Minister Giuliano Amato, who was said to have been his original
favourite, indicated he had plumped for a more political figure
who reflects a generational change in Italian politics.

Letta, an urbane moderate who speaks fluent English, is 46
against Amato’s 74 and is an elected member of parliament unlike
the older, more experienced man.

He will be the second youngest prime minister in Italian
history and as a staunch pro-European is likely to be welcomed
by foreign governments and markets.

The new government will be backed primarily by Letta’s
centre-left and the centre-right of Silvio Berlusconi, which had
hitherto failed to cut a deal following inconclusive elections
in late February.

MARKET RELIEF

Investors have already reacted with relief to the prospect
of an end to the intractable crisis, with Italy’s borrowing
costs on Wednesday tumbling to their lowest level since the
start of European monetary union in 1999.

However, the country’s problems are not over, with
significant differences remaining between left and right over
economic policy.

These were put sharply into focus even before Letta was
chosen when Renato Brunetta, house leader for Berlusconi’s PDL
party, said they would only support a government committed to
repealing a hated housing tax introduced by outgoing technocrat
premier Mario Monti and paying it back.

The centre-left agrees only to a partial reduction of the
tax and many economists say such a move would leave a gaping
hole in Italy’s public accounts.

But Napolitano, who reluctantly agreed to serve another term
as president, has made clear that he will brook no more endless
squabbling between the parties and has threatened to resign if
they do not unite behind economic policies and important
constitutional reforms.

Chief among these is the repeal of a dysfunctional electoral
law which was largely responsible for the post election impasse.

Letta, the nephew of Berlusconi’s long-time chief of staff
Gianni Letta, is close to former party leader Pier Luigi
Bersani, who resigned at the weekend after rebels sabotaged him
in the voting for a new president.

Berlusconi’s People of Freedom (PDL) party, Letta’s PD and
Monti’s centrist Civic Choice movement had all said they would
cooperate with whomever Napolitano chooses.

“Given the crisis the country finds itself in, the country
needs a strong, a durable government that can make important
decisions,” Berlusconi said after meeting Napolitano on Tuesday.

President Giorgio Napolitano has reluctantly been re-elected for an unprecedented second term after traditional politicians begged him to stay on and deal with one of the most turbulent moments in recent Italian political history.

Now there is some optimism that a government can be formed within the week, nearly two months after February’s inconclusive election.

Following are the scenarios and potential problems following Napolitano’s re-election, both for the short and medium term:

NEW GOVERNMENT

Napolitano, who is 87, has emerged from the turmoil with his power greatly enhanced compared to the previous few months, when as an outgoing president his arms were constitutionally tied.

Now he not only has the big stick of being able to call a snap election, which many politicians want to avoid, but is thought to have obtained solid assurances of cooperation from party leaders who begged him to stay on.

Napolitano is expected to hold a rapid round of consultations with political parties on Tuesday, banging their heads together and then handing a mandate to a potential new prime minister as soon as Wednesday.

This prime minister-designate would try to form a broad based coalition between the divided center-left and Silvio Berlusconi’s center-right plus the centrists of outgoing Prime Minister Mario Monti within the week.

Beppe Grillo’s populist 5-Star Movement bitterly opposes the deal that re-elected Napolitano and would remain in opposition, joined by the leftist SEL party of Puglia governor Nichi Vendola.

Napolitano’s favorite to lead this government is said to be veteran politician Giuliano Amato, a 75-year-old former premier with the experience and skills to face the political chaos.

However, after the election in February showed an overwhelming desire for change, Amato may be seen as too old and too much a member of the traditional establishment. One alternative is Enrico Letta, the 46-year-old outgoing deputy leader of the divided center-left Democratic Party (PD).

However the PD splits may torpedo Letta, leaving Napolitano to choose a less established political figure.

Whoever is given the mandate is expected to try to form a government by the end of the week with ministries mixed between senior politicians and a few technocrats.

They could include members of Monti’s government or of the two commissions of “sages” that Napolitano set up last month to propose reforms to mend the broken political system and address a chronic recession that has incited serious public anger.

Estimates of the life of the new government vary between one and two years – if it survives at all.

A common prediction is that a new election could be held in June 2014, coinciding with European polls and saving money for Italy, which has one of the world’s biggest public debts.

High among the government’s priorities would be policies to restore growth to a chronically stagnant economy, stimulate employment and reform a dysfunctional electoral law which is one of the main reasons for the long deadlock since February.

PROBLEMS

Although this outcome is widely predicted, the new mood has not eliminated several elements of potential instability.

Chief among these is the explosion inside the Democratic Party whose leader Pier Luigi Bersani has resigned and is said to be a broken man after party rebels torpedoed two presidential candidates he had ordered them to vote for last week.

There is now open factional warfare inside the party which could make it difficult to forge a reliable deal on a government or avoid parliamentary sniping against the new administration.

The leftwing of the party opposes any coalition with media magnate Berlusconi, who faces a string of scandals, and divisions over this were at the center of Bersani’s difficulties.

If a section of the party objects to a government deal, it could split off and join Vendola in a new leftwing grouping which might ally with Grillo’s populists.

But another danger is that Berlusconi, with his enemies in total disarray, could decide to exploit his advantage and go back to the polls within months if he doesn’t get what he wants in the new government.

However, doing so before the electoral law is repealed could repeat the current deadlock, leaving Berlusconi as stranded as Bersani has been after winning most votes in the last election.

WINNERS AND LOSERS

By far the biggest loser is Bersani, an amiable but colorless politician whose string of errors have destroyed his career and brought his party to the brink of collapse.

The biggest winner looks like Berlusconi, who is now riding high, having overtaken the center-left at the top of the opinion polls and projecting an image of statesmanlike restraint as Bersani’s party falls apart. He has been calling for a broad based grand coalition for weeks.

It is an extraordinary reversal of fortunes from as recently as last November when Berlusconi looked a beaten man, his People of Freedom (PDL) party was fracturing, and Bersani had a 10-point lead in opinion polls.

But Berlusconi, 76, has long been acknowledged as one of Italy’s most skilful politicians, with enviable communication skills complimented by his television empire. Bersani has proved to be one of the worst.

Another big winner looks like being Matteo Renzi, the 38-year-old mayor of Florence, an outspoken opponent of Bersani and who, in contrast, is a dynamic and effective politician.

However, Renzi needs time to set him up as the center-left candidate in the next election and he said on Monday there should be no vote for a year.

Renzi has long been seen as a game changer in Italy with the skills to defeat Grillo’s rabble rousing tactics – unlike Bersani – and also attract a big chunk of center-right voters.

But it remains to be seen whether a center-left robbed of its left wing, which opposes Renzi, would be strong enough to defeat Berlusconi and Grillo in a new election.

Whether Grillo is a winner or loser from all this is the subject of debate. Certainly, after weeks of perfect tactics he made a major blunder on Saturday by calling for a “march on Rome” to oppose what he denounced as an establishment stitch-up to re-elect Napolitano.

The inflammatory language, which evoked images of the march on Rome by fascist leader Benito Mussolini in 1922, was widely condemned even by some of Grillo’s own supporters.

The latest debacle, however, may boost disillusion among Italian voters that could help Grillo, unless the new government really does succeed in passing major reforms quickly.

(Editing by Anna Willard)

The collapse of efforts by the center-left to secure the presidency for Prodi underlines the deep fractures running through politics in a country still seeking a government nearly two months after February’s inconclusive general election.

“The politicians should be ashamed of what they’re doing to the country. Today we’re seeing a level of irresponsibility that goes beyond all limits,” said Diego Della Valle, head of shoe group Tod’s, one of Italy’s most successful clothing companies.

The presidency, an office elected by parliamentarians and regional representatives, is a largely ceremonial position, but is important at times of political instability like the present, when the president plays a major role in forming a government.

Without a government, efforts to pull the euro zone’s third-largest economy out of recession and pass meaningful reforms will remain blocked, while rising unemployment and declining living standards feed an increasingly bitter popular mood.

Berlusconi’s center-right group boycotted the vote for president and protested outside parliament, accusing center-left boss Pier Luigi Bersani of breaking a promise to put forward a candidate the center-right could accept.

Many center-left rebels also refused to vote for Prodi, delivering the latest in a string of humiliating rebuffs for Bersani, whose leadership of the badly divided Democratic Party (PD) is under threat.

“Prodi’s failure was stunning and embarrassing. What’s left in the ballot box are the fragments of the PD,” said Renato Brunetta, the leader of Berlusconi’s People of Freedom (PDL) party in the lower house.

INTERNAL STRIFE

In a sign of the PD’s internal strife, its president Rosy Bindi announced late on Friday that she was quitting because she did not want to carry responsibility for the party’s “poor showing” in recent weeks.

The vote was the fourth in a complex election process by 1,007 electors from both houses of parliament and the regional representatives. Fifth and sixth votes are expected on Saturday.

But the failure of four votes so far demonstrates the political animosity and uncertainty since the election in February, in which Bersani’s bloc won the most votes but not enough to rule on its own.

Since then, Bersani has failed to agree a ruling coalition with either Berlusconi on the center-right or former comedian Beppe Grillo, whose protest movement’s unexpected electoral success has confounded the traditional parties.

Prodi won only 395 votes, well short of the absolute majority of 504 he needed. Around 100 center-left rebels refused orders to vote for him in the secret ballot.

The bitter battle over the presidency has underlined how hard it will be to reach political consensus on anything, let alone vital economic reforms or changing an electoral law that is one of the main causes of the current impasse.

Bersani’s selection of Prodi marked a dramatic about-turn, after he failed on Thursday to impose 80-year-old former Senate speaker Franco Marini on the center-left as presidential candidate under the terms of a deal with Berlusconi.

Bersani hoped that reaching an accord with media tycoon Berlusconi would ease the path to the formation of a minority government. But furious PD opposition to any deal with the scandal-plagued billionaire, currently fighting two separate trials over sex charges and a tax fraud conviction, forced him to backtrack.

(Additional reporting by Paolo Biondi, Naomi O’Leary and Gavin Jones; Editing by David Stamp and Gavin Jones)