Italy's deadlock nears end as new PM choice looms

Italian President Giorgio Napolitano prepared to unveil his nomination for prime minister on Wednesday to bring to an end a two-month deadlock on forming a new government that has stalled reforms and set off alarm bells around Europe.

The most likely choices according to Italian media reports are Enrico Letta, a 46-year-old leftist, or Giuliano Amato, a 74-year-old academic and Europhile former prime minister whose political career stretches back to the early 1980s.

Amato has remained above the party political fray in recent years and is seen as one of the few figures who could lead a type of coalition government which is expected to include politicians from both the right and the left.

Letta, a former leader of the youth wing of the centre-right Christian Democratic party who is now the deputy leader of the leftist Democratic Party, is also seen as someone able to bridge the divide.

Adding to his cross-party credentials is the fact that his uncle, Gianni Letta, a shadowy figure in Italian politics, has been centre-right leader Silvio Berlusconi's top aide for many years.

The eurozone's third largest economy has been mired in a bitter political crisis ever since a general election in which a centre-left coalition led by the Democratic Party came first but failed to win an overall parliamentary majority.

"Constant conflict is a luxury that Italy cannot afford. The government has to be one of national pacification," said Massimo Franco, a columnist for the top-selling Corriere della Sera daily.

The Democratic Party (PD), which had previously ruled out an alliance with Berlusconi's People of Freedom party, now says it is open to any option suggested by the 87-year-old president.

But the idea of being in government with Berlusconi's party is hugely controversial within the PD, reinforcing long-standing divisions that are now threatening to tear the leftists apart.

"A grand coalition government is a bitter medicine for the PD," said Stefano Folli, columnist for business daily Il Sole 24 Ore.

Berlusconi has already said his party will support the president's choice, as has the centrist Civic Choice group led by Prime Minister Mario Monti.

The combination of right, centre and left would mirror the loose alliance that backed Monti's reform-oriented technocratic government until Berlusconi pulled his party's support for it in December, precipitating early elections.

The PD has been badly divided since the inconclusive result of the February 24-25 polls and its entire leadership resigned on Friday after two of its presidential nominations failed to get voted because of a rebellion within party ranks.

Napolitano was eventually re-elected to a second term on Saturday -- the first Italian president to stay on -- after the main political parties pleaded with him to resolve their differences.

At his swearing-in on Monday, Napolitano accused the parties of being "deaf" to the calls for reform from ordinary Italians and of committing "mistakes, omissions and irresponsibilities".

Napolitano threatened to resign if the parties continued stalling and said they should form a government "without delay" based on a realistic assessment of their strength in parliament.

The Five Star Movement, a new protest party that won a quarter of the vote and came third in the elections, said after talks with Napolitano on Tuesday that it would lead the opposition.

Several smaller parties on both right and left also said they would stay out of the new cabinet.

Monti's government remains in office until a new one is formed but it has only interim powers.

Business leaders, trade unionists and the Catholic Church have urged politicians to act quickly as a painful recession forces firms to shut down and leaves many Italians struggling to make ends meet.

Investors responded well to the imminent end to the deadlock, with stocks in Milan closing 2.93 percent higher on Tuesday and borrowing costs falling to their lowest levels since 2010.

Stocks were up 0.71 percent in trading on Wednesday.