Italy in limbo after Bersani loses government bid

Italian leftist leader Pier Luigi Bersani lost his bid to form a new government on Thursday after failing to break a political deadlock, leaving the eurozone's third largest economy in limbo. The ex-Communist had been given a mandate last week by Italy's president to try and muster enough support to govern after inconclusive elections that left the country vulnerable on financial markets. After six days of intense and often bitter consultations with rival parties, Bersani reported to President Giorgio Napolitano that he had failed to gather the parliamentary backing needed to rule. "My work in these days has not led to a positive result," Bersani said after talks with Napolitano. The Democratic Party (PD) said their leader had not given up on forming a government, but observers said Napolitano could now move to choose a different figure to lead Italy. Napolitano "will take immediate initiatives that will allow him to ascertain personally the possible developments", said Donato Marra, the secretary general of the presidency. The president is set to begin a new round of consultations with political parties at 1000 GMT on Friday, the presidency said. Napolitano could hand over the reins to a technocrat government similar to the one headed up by outgoing Prime Minister Mario Monti, who was brought in to rescue Italy from the debt crisis in 2011. Bersani's failure to muster support returns Italy to square one, after elections in February saw the centre-left scrape a victory in the lower house but fail to win a key majority in the upper house. Napolitano had made it clear that Bersani would have to come up with firm guarantees of support from the other parties in order to win a full mandate to form a government. -- Political turmoil -- The political turmoil in Italy has been watched closely by Europe and the markets, which fear instability in the debt-laden country could spark tumult in the eurozone, particularly after a bailout dispute in Cyprus reignited fears over the euro area debt crisis. Financial observers warn that the longer the country goes without a government, the deeper the already troubled economy may slump -- bad news for ordinary Italians, who have already been hit hard by the worst recession in Italy for 20 years. Business leaders and trade unions have sounded the alarm over the state of the economy in Italy. "We cannot wait. We are at the end, there's no more time," said Italy business lobby head Giorgio Squinzi. Youth unemployment was at almost 39 percent in January, while the government said last week that the economy looks to shrink by 1.3 percent this year, compared with the 0.2 percent shrinkage previously forecast. The 61-year-old Bersani had tried to persuade other parties to support him -- proposing a limited programme of urgent reforms in exchange for their backing -- but on Thursday blamed his difficulties on "unacceptable demands" made by rivals. The leftist leader had tried repeatedly to woo the anti-establishment 5-Star Movement (M5S) founded by former comedian Beppe Grillo -- but his increasingly desperate overtures fell on deaf ears. He had been unwilling from the start to work with former premier Silvio Berlusconi and the right, and turned down conditional offers of support which hinged on having a say in key appointments. The right came a close second in the February elections and Berlusconi said a coalition in government would only be fair to Italian voters. Bersani's refusal to countenance a left-right coalition angered some within his party, who thought that allying with their rivals would be better than returning to the ballot box. The country is now waiting with bated breath to see what sort of government will emerge from the electoral ashes. Any new government will face the huge challenge of balancing pressure at home to ease austerity and European insistence for Italy to stick to its economic targets. "The markets have begun to realise in the past few days how weak and fragile this Italy without a government is," said Stefano Folli, a political analyst and columnist for Italy's Il Sole 24 Ore business daily. The difference or spread between the German and Italian sovereign 10-year bond yields widened to 477 basis points from around 450 last week, indicating increased concern among investors.