Italy's Letta courts old guard in bid for fresh politics

Italian leftist Enrico Letta was expected to reveal Saturday whether he has succeeded in uniting the country's feuding parties and persuading the old guard to step aside for a government of fresh talent.

The moderate Letta, who has led two days of consultations with the parties in a bid to form a coalition, was said by sources close to his staff to be on the point of persuading the bickering left and right to work together.

Once differences between Italy's centre-left Democratic Party (PD) and Silvio Berlusconi's People of Freedom party (PDL) have been ironed out, Letta will formally accept the nomination of prime minister from President Giorgio Napolitano.

He will then be sworn in along with his new cabinet, before the government is put to a confidence votes in the two houses of parliament.

Most observers were upbeat about Letta's chances as he met with Berlusconi and the former head of the centre-left, Pier Luigi Bersani, in a bid to close the deal on Saturday.

Italian media feverishly ran through possible cabinet candidates in constantly updated "Toto minister" pools, based on the popular system for betting on the results of Italian football matches.

But some commentators warned that the sparring left and right risked thwarting coalition plans and worsening Italy's political and economic situation.

The parties are acting as if "the government being created is an alliance formed with a pistol to its head," said Luciano Fontana in Italy's best-selling Corriere della Sera daily.

Conditions imposed by both sides "are complicating the deal's closure, to the point it risks failure," he warned.

The 46-year-old Letta has said he wants to move quickly to tackle the social fallout of a painful recession and Napolitano has been urging him to include younger ministers and women in his cabinet to help renew the country's tired political scene.

But cross-party unity has demands attached.

Negotiations have been trickiest with the scandal-tainted billionaire tycoon Berlusconi, who has insisted on the abolition and repayment of a controversial housing tax introduced in 2012.

Such a move would set the budget back some eight billion euros ($10.4 billion) in a country suffering from its longest recession in 20 years.

Furthermore, Letta's own PD, which narrowly won inconclusive general elections in February, is deeply divided over going into government with Berlusconi's centre-right.

The PD said on Friday it would unanimously support Letta, but there were rumblings from disgruntled rebels and Bersani was cited by sources close to the talks as having warned the prime minister-designate that a government "should not be formed at any cost."

There have been calls from both sides to prevent rival figures from Italy's political scene from grasping ministerial posts -- with Berlusconi, Monti and former premiers Giuliano Amato and Massimo D'Alema the names most fiercely contested.

All centre-right talks with Letta so far have been attended by his uncle Gianni Letta -- a close Berlusconi ally -- and critics have accused the pair of being in league with one another.

"The knife's handle is in the hands of Gianni Letta, not Enrico," political commentator for Il Sole 24 Ore daily Gianni Dragoni said.

Former comedian Beppe Grillo, head of the Five Star Movement protest party which won a quarter of the vote to win third place, accused the left and right of ignoring those who had voted for change.

"Over eight million Italians who voted for the Five Star Movement are considered intrusive, dogs in Church, third wheels, despised as if they were passing jerks to be pitied," he said on his blog.

The alternative to a Letta deal would likely be fresh elections -- which neither side would necessarily win with the majority needed to govern, and which may raise fears among international investors of increased political stability.

Moody's affirmed Italy's Baa2 rating and negative outlook Friday, warning of an "elevated risk that the Italian sovereign might lose investor confidence and, ultimately, access to private debt markets as a result of the political stalemate."

Berlusconi has ruled out his own inclusion in the cabinet, but his critics said the tycoon is the real victor of the institutional crisis which has gripped the eurozone's third largest economy.

In two trials due to resume next month, he is appealing a tax fraud conviction and defending himself on charges of having sex with a 17-year-old prostitute -- but his popularity levels have recently been on the up again, giving him a certain leverage with Letta.

If he succeeds in getting his way with the housing tax or ministerial postings, "it will show he is the real driver behind the government," said Piero Ignazi in La Repubblica daily.