Berlusconi disappointed by EU win, small rivals gain

After a campaign concentrating not on the recession but on Berlusconi's divorce, relationship with a teenage girl, business dealings and use of government planes to fly guests to parties at his villa, he still managed to win easily with 35.2 percent.

But this was far short of the 40 percent forecast in polls and the 45 percent the prime minister had predicted for his conservative People of Freedom party (PDL) in the weekend vote.

"It's a bad result," La Stampa newspaper quoted Berlusconi as saying, while his spokesman Paolo Bonaiuti blamed it on the low turnout and "making use of gossip against the premier."

The junior party in his government -- the anti-immigrant Northern League -- and a small party run by his most bitter political foe, anti-graft campaigner Antonio Di Pietro of the Italy of Values party (IDV), both made strong gains.

"The populist extremists in both coalitions won: the League on the center right and the IDV on the center left," Lorenzo Cesa, secretary of the centrist Christian Democrats, said.

The League, which has forced the government to crack down on immigration and has proved a tricky partner in the past, bringing down Berlusconi's first government in 1994, rose to 10.2 percent from 5 percent in the last European election in 2004 and 8.3 percent in the lower house of parliament in last year's Italian election.

Berlusconi's fans had hoped a strong result would silence critics -- including foreign newspapers -- and help his government deal with the economic recession.

Italian business lobby Confindustria's president, Emma Marcegaglia, said it was time to push ahead with reforms such as cutting back red tape and inefficiency in the public sector.

"It is time for big reforms which everyone talks about but, for too long, nobody has been doing," she told an industry conference. "The current government has started some of these reforms but now it needs to achieve concrete results."

DAVID VS GOLIATH

But analysts said that scenario was now unlikely.

"Reforms, good or bad, will definitely become more distant," Massimo Giannini wrote in the center-left daily La Repubblica.

The main opposition Democratic Party, whose government collapsed early last year, continued its decline with 26 percent versus 31 percent in 2004 and 33 percent in last year's vote.

"We were David against Goliath," said PD leader Dario Franceschini, complaining that it was unfair to have to compete with media tycoon Berlusconi's domination of the campaign via his Mediaset broadcasting company, as well as state TV RAI.

His junior partner, Di Pietro's IDV, made huge gains, scoring 8 percent versus 2 percent in Europe in 2004 and 4.4 percent in Italy's 2008 election.

Di Pietro is a thorn in Berlusconi's side, accusing him of abusing his position as owner of the country's largest private broadcaster and countering his attacks on the judiciary.

The results of local elections also held this weekend were expected from 4 p.m. (1400 GMT) and will show how Berlusconi's support has held up at the local level and whether the League has snatched votes from allies and opponents.

(Editing by Matthew Jones)