Italy's Letta updates president on coalition talks

Italian prime minister-designate leftist Enrico Letta was expected to update President Giorgio Napolitano Saturday on his efforts to strike a coalition deal and give Italy a much-awaited government.

The presidency said the leftist 46-year-old was due to meet Napolitano at 1300 GMT but it was not known whether he had succeeded in breaking the two-month-old deadlock.

Centrist politician Lorenzo Cesa predicted "a positive outcome by the end of the day" but other MPs said that while they expected a breakthrough before markets reopen on Monday, they did not see it happening before Sunday.

Once differences between his 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 Napolitano.

He will then be sworn in along with his new cabinet, before the government is put to a confidence vote in both 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 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.

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.

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.