Berlusconi warns of crisis ahead of crucial vote

ROME (Reuters) - Italian Prime Minister Silvio Berlusconi said rebel lawmakers could pitch Italy into the middle of the euro zone's debt crisis if they voted against him in a no-confidence vote on Tuesday.

Speaking in the Senate a day before a showdown that could force him from office and trigger early elections, Berlusconi said his government had kept Italy out of the turmoil seen in Ireland or Greece but that the threat of instability remained.

"It is madness to initiate a crisis without any foreseeable solutions," he said.

A year of party infighting and corruption and sex scandals has hit Berlusconi's leadership credentials while a scandal over waste management in Naples has made piles of uncollected garbage an embarrassingly visible symbol of the government's weakness.

On Tuesday, dubbed "B-Day" by Italian media, Berlusconi faces a no confidence motion in the lower house called by opposition and rebel center-right deputies and a confidence vote the government has tabled in the Senate where it has a majority.

The 74 year-old media tycoon no longer enjoys a lower house majority following a bitter split in July with former ally Gianfranco Fini and a group of rebel center-right deputies who have broken away from the ruling PDL party.

But after an intense campaign of lobbying and promises described by adversaries variously as a "cattle market" or "football transfer season," the government appears to have made up ground with wavering deputies.

Some commentators estimate a result as close as 314 votes for Berlusconi against 313 for the opposition is possible.

Whether that will be enough for longer term stability is unclear. Umberto Bossi, the bluntly spoken head of Berlusconi's Northern League coalition partners, expressed the skepticism of many when he said: "You can't govern with a one vote majority."

The result of the Senate vote is expected at around 11.30 a.m. (1030 GMT), with the lower house result likely after 1.30 p.m. (1230 GMT).

DEBT BURDEN

Tuesday's vote is being closely watched by financial markets on high alert over the euro zone debt crisis, and a prolonged period of uncertainty or a divisive election campaign could turn the spotlight on Italy's strained public finances.

Despite one of the heaviest debt burdens in the world at almost 120 percent of gross domestic product, Italy has largely escaped the turmoil seen in Greece and Ireland thanks to tight control of public spending and a conservative banking system that avoided excess during the market boom.

Markets were reassured last week when the 2011 budget was passed in parliament but politicians on all sides are acutely aware of the danger of contagion.

An alarming jump in the premium investors demand to hold Italian debt rather than benchmark German bonds last month underlined the risk, although the interest rate spread has since come back from the record levels it hit on November 30.

Even if Berlusconi scrapes through, however, there is little confidence he will have the strength to press the kind of reforms authorities such as the Bank of Italy believe are needed to address deep-seated problems in the economy.

High youth unemployment, uncompetitive industry, crumbling infrastructure and an underfunded education system have all contributed to the chronic weakness of the Italian economy, which is emerging only slowly from its worst post-war recession.

Berlusconi said on Monday if he defeated the no-confidence motion, he would open his cabinet to other forces from the center and center-right, in an appeal to so-called "doves" in the rebel camp not to bring his government down.

Financial daily Il Sole 24 Ore, often taken as the voice of the Italian business establishment, was skeptical.

"These offers may serve to win the confidence of parliament by one or two votes. They are certainly not enough to truly relaunch a government which needs profound renewal," it wrote in an editorial on Monday.

(Additional reporting by Francesca Piscioneri, Antonio Denti; Editing by Ralph Boulton)