Italian political leaders hold talks on new government

Italian political leaders on Thursday held talks on forming a new government after elections in the austerity-stricken country that left no clear winner, amid rising tensions in the eurozone.

The talks were hosted by President Giorgio Napolitano, who has been meeting individually with all the parties represented in parliament since Wednesday in an attempt to cobble together a parliamentary majority behind a new cabinet.

Napolitano's post is mostly ceremonial but takes on crucial significance in times of crisis and analysts say he could try to put in place a technocratic government similar to the outgoing one of Prime Minister Mario Monti.

Most observers are predicting that, whatever the outcome of this week's talks, there will have to be another general election within a few months or a year at most to resolve the gridlock from the February 24-25 vote.

The centre-left led by Pier Luigi Bersani, an ex-communist who has promised to stick to Monti's liberal reforms, won the elections but failed to get enough votes to win a majority in both the upper house and the lower house.

The centre-right led by former prime minister Silvio Berlusconi, a billionaire tycoon who is mixed up in several court cases and has been convicted of tax fraud, came in a very close second.

A new protest party that gathered millions of votes from Italians fed up with austerity and the perks enjoyed by politicians also made major inroads.

The Five Star Movement, led by ex-comedian Beppe Grillo, is now the biggest single party in parliament although smaller than the two main coalitions.

Grillo met with Napolitano on Thursday, along with the party's two main lawmakers in parliament, deputy Roberta Lombardi and senator Vito Crimi.

"We officially asked for the mandate to form a government," Lombardi said.

Crimi outlined the Internet-based party's 20-point governing programme including a referendum on whether Italy should stay in the eurozone, a new subsidy for the unemployed and more funding for public health and schools.

Analysts say it is highly unlikely that the anti-establishment party will be asked to form a government since it came third in the elections.

Grillo said in a blog post after his meeting with the president that his party would not vote for any government it does not lead and would only vote in favour or against individuals laws "on a case-by-case basis".

Napolitano also met Berlusconi and will holds talks later on Thursday with Bersani, who is the most likely to receive the mandate to form a government.

Bersani has made overtures to Grillo's party, including replicating some of their demands but has been turned down. He has excluded a grand coalition with his arch-rival Berlusconi, a scandal-tainted three time prime minister.

"We are available for a coalition government that can intervene immediately with economic measures that have broad support," Berlusconi said.

Analysts say the only other option would be a government with non-political figures similar to the one led by Monti, a former European commissioner and economics professor, installed after Berlusconi's ouster in November 2011.

That government could last only a few months and could be charged with dealing with some of Italy's most urgent economic problems and reforming a complex electoral law that is widely blamed for the current impasse.

Time is running out and investors have warned that if Italy does not form a new government soon it risks being dragged into the eurozone debt crisis once more, with a spike in its borrowing costs.

There are fears too in European capitals that any new government could ease Monti's budget discipline and ease his drive for reforms.

Concern has increased in light of the current bitter standoff over a bailout for Cyprus which is sending tremors throughout the eurozone.