* Letta represents generational change
* Broad coalition expected to take office in days
* Democratic Party fractured by infighting
By Barry Moody and Paolo Biondi
ROME, April 24 Italian President Giorgio
Napolitano on Wednesday asked centre-left politician Enrico
Letta to form a new government, signalling the end of a damaging
two-month stalemate since elections in the euro zone's third
largest economy in February.
Letta, from the Democratic Party (PD), said he would start
talks to form a broad-based coalition on Thursday. It is likely
to go to parliament for a vote of confidence by early next week.
The prime minister designate is expected to select a group
of ministers, likely to be a mixture of politicians and
technocrats, under the guidance of Napolitano, whose own
unprecedented re-election last weekend opened the way for an end
to the crisis.
The new government will be backed primarily by Letta's
centre-left and the centre-right People of Freedom party (PDL)
led by Silvio Berlusconi, which had previously failed to reach a
deal following inconclusive elections two months ago.
Rivalries between the parties as well as rifts within the
PD, which fell short of a viable parliamentary majority in
February's vote, could still block an accord. But formation of a
government after such a long impasse would signal that Italy is
finally ready to make a start on much-needed reforms.
Accepting his mandate, Letta said he would not form a
government "at all costs", warning that the warring parties must
make compromises or he would withdraw.
He said Italy faced an untenable situation and the
government must provide answers on jobs, poverty and the crisis
facing small businesses in a recession that now matches the
longest since World War II.
European Union economic policies had been too focused on
austerity instead of growth, he said, and Italy's parliamentary
system must be reformed together with the widely criticised
electoral law that has virtually guaranteed stalemate.
The bespectacled and balding Letta is an urbane moderate who
speaks fluent English and at 46 would be one of Italy's youngest
prime ministers, representing a generational change from the era
of Berlusconi and outgoing Prime Minister Mario Monti.
A staunch pro-European and a member of the now-defunct
Christian Democrat party in his youth, he is likely to be
welcomed by foreign governments and markets and can also work
with the centre-right.
He is the nephew of Berlusconi's longtime chief of staff,
Gianni Letta, and has numerous political friends on all sides of
parliament, which could help ease the fractious climate since
As Letta met close aides, the names being circulated as
likely future ministers suggested a government broadly in line
with Monti's outgoing technocrat administration but including
senior politicians such as PDL party secretary Angelino Alfano.
Bank of Italy director general Fabrizio Saccomanni was seen
as a possible economy minister and Enrico Giovannini, head of
statistics agency ISTAT, may take over the industry ministry.
Monti himself could return as foreign minister, helping to
maintain the international contacts he cultivated as premier.
Investors had already reacted with relief to the prospect of
an end to the intractable crisis, with Italy's two-year
borrowing costs on Wednesday tumbling to their lowest level
since the start of European monetary union in 1999.
However, the country's problems are not over, with
significant differences remaining between left and right over
economic policy and the centre-left in disarray after letting
slip an election it had once seemed sure to win.
These difficulties were put into sharp focus even before
Letta was chosen, when Renato Brunetta, a senior member of
Berlusconi's PDL party, said they would only support a
government committed to repealing, and refunding, a housing tax
introduced by Monti.
The centre-left agrees only to a partial reduction of the
tax and many economists say cuts in the levy would leave a
gaping hole in Italy's public accounts.
Letta will also have to make sure he has his own party
behind him. Factional infighting forced Pier Luigi Bersani to
resign as party leader last week and there is significant
internal opposition to any accord with Berlusconi.
Matteo Renzi, the ambitious young mayor of Florence seen as
a potential leader of the centre-left, could also prove a
difficult partner to integrate.
Berlusconi gave a firm promise to Napolitano that he would
support a coalition government in which his party shared power
with the PD but favourable opinion polls may tempt him at some
point to seek new elections.
Napolitano, who reluctantly agreed to serve another term as
president, has made clear, however, that he will not accept
endless squabbling between the parties and has threatened to
resign if they do not unite behind economic and constitutional