* Hard-right League sank govt with 5-Star two weeks ago
* President gave parties 5 days to end crisis and avoid elections
* First day of talks between 5-Star and opposition PD
* 5-Star chief insists on cutting number of lawmakers
By Angelo Amante and Gavin Jones
ROME, Aug 23 (Reuters) - The anti-establishment 5-Star Movement sought to gain the initiative as it began formal talks on Friday with the opposition Democratic Party (PD) to try to form a coalition to end Italy’s government crisis.
The euro zone’s third-largest economy is in political turmoil after its government, riven by months of infighting, imploded this week, forcing prime minister Giuseppe Conte to resign just as he was to begin preparing the 2020 budget.
President Sergio Mattarella on Thursday gave the parties five days to clinch a deal to avoid a snap election which would be likely to reward the hard-right League Party which pulled the plug on its year-long coalition with 5-Star.
The centre-left PD and 5-Star, traditionally acrimonious foes, are now negotiating to form a new coalition and push the League into opposition. Amid mutual suspicions and gaping policy differences, each party is raising the stakes, betting that the other has more fear from a return to the polls in the autumn.
For a FACTBOX on the hurdles in way of a 5-Star/PD coalition government, click:
On Friday it was 5-Star’s turn to play hardball, with its leader Luigi Di Maio saying the talks would go nowhere unless the PD agreed to cut the number of lawmakers to 600 from 945.
The PD has opposed the reform in parliament and says it will only consider it as part of a broader institutional reform that would be a long, drawn-out process.
The reduction in the number of parliamentarians was the first of 10 points 5-Star has put forward as a basis for discussion and, as the two parties’ parliamentary leaders sat down to talks on Friday, Di Maio said it was not negotiable.
“The cut in the number of parliamentarians must be done, full stop. If we don’t get that first point there won’t be anything else,” he told reporters.
Five-Star may feel its hand is strengthened by growing signs that the League regrets its move to scupper the government two weeks ago and is angling to resurrect the coalition which has governed for the last 14 months.
“I think there is still the possibility to mend our relations with 5-Star,” the League’s Agriculture Minister Gian Marco Centinaio said on Friday.
“It’s a narrow path but if there is the time and the will to sit around a table there will be no problems,” he said.
The parties’ positions may be influenced by an opinion poll published on Thursday by the Tecne agency which showed the League remained the most popular party, on 31.3%, but had lost seven points since it triggered the government crisis.
On Friday Alessandro Di Battista, one of 5-Star’s most popular and influential figures, said it had “immense bargaining power” thanks to divisions in the PD and the signs of backtracking by the League.
In a post on Facebook, he said 5-Star should “enormously raise the stakes” by insisting its key demands are met, adding that the League’s overtures were “a good thing” and might mean the next prime minister could be from 5-Star.
It remains to be seen whether Di Battista’s hard line will be welcomed by Di Maio or will bear fruit in the negotiations.
President Mattarella told the parties to report back on Tuesday and the three main options of a 5-Star/PD tie-up, snap elections, and a return of the 5-Star/League coalition, all remain on the table. (Writing by Gavin Jones; Editing by Toby Chopra)