Italy poised for talks to break government deadlock

Italian political leaders were poised for a new round of talks on Friday after leftist Pier Luigi Bersani failed to form a government following inconclusive elections in eurozone's third-largest economy.

President Giorgio Napolitano was scheduled to host the talks starting at 1000 GMT on Friday, as European capitals and financial markets watched warily amid renewed turbulence in the eurozone.

Italy's main business daily Il Sole 24 Ore issued a stark warning to bickering politicians with a front-page headline reading: "Stop the Games".

Editor Roberto Napoletano warned of a "political vacuum" even as the country faced an economic emergency, adding: "There is no time to lose."

Pierluigi Battista, a columnist for the Corriere della Sera daily, said: "The main political forces have to choose whether to commit to a very tough challenge or jump back into another campaign".

"We still do not know... if we will manage to have a government in a reasonable timeframe and who will take part and what priorities it will have, while the economy and society stagnate," he said.

"The next few hours will tell," he added.

Political analyst Ugo Magri warned in La Stampa daily that Italy risked finding itself back in the market turmoil that led to Silvio Berlusconi's ouster in 2011 once the Milan stock market re-opens on Tuesday after the Easter holiday.

"Without a solution to the crisis, we will be back to two years ago. Or worse," he said.

Bersani's centre-left coalition got the most votes in the February 24-25 elections, winning a majority in the lower house of parliament but not in the upper house -- with Berlusconi's centre-right a very close second.

Napolitano asked Bersani last Friday to try to form a government, but the ex-communist failed in his attempt to woo lawmakers from the Five Star Movement, an anti-establishment party.

Bersani has ruled out a coalition government with his arch-rival Berlusconi, a scandal-tainted 76-year-old billionaire tycoon who has served as prime minister three times in a tumultuous political career spanning two decades.

Analysts said a variety of scenarios were possible.

One option is that Napolitano will nominate a prime minister candidate from outside the party political sphere -- an arrangement similar to the one that brought Mario Monti to power in 2011.

A former European commissioner, Monti kept public finances in check and launched key reforms but was punished at the ballot box by widespread opposition to his austerity measures.

Another possibility is that Napolitano could try to push through some kind of right-left coalition.

Berlusconi loyalist Daniela Santanche told La Repubblica daily that there could either be a right-left coalition or her party could support a minority leftist government on condition that it got to select the next president.

Napolitano's mandate runs out in May and, while the post is largely ceremonial, it takes on vital importance in times of political crisis.

Any new government would need to win confidence votes in both houses of parliament.

Most analysts predict that Italy will be forced to hold new elections within months at the earliest, or one or two years at the latest, since any government is unlikely to be stable with the current three-way split of parliamentary forces.

The debt-laden country is mired in its longest recession in 20 years and unemployment has spiralled to record highs.

Monti's cabinet will remain in place until a new government is formed, although it has effectively been operating with interim powers since December.