Monte Paschi scandal menaces frontrunner in Italy election

ROME Fri Jan 25, 2013 12:10pm EST

Italy's Prime Minister Mario Monti speaks during the annual meeting of the World Economic Forum (WEF) in Davos January 24, 2013. REUTERS/Pascal Lauener

Italy's Prime Minister Mario Monti speaks during the annual meeting of the World Economic Forum (WEF) in Davos January 24, 2013.

Credit: Reuters/Pascal Lauener

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ROME (Reuters) - A growing bank scandal in Italy on Friday threatened to hurt both the center-left frontrunners and outgoing premier Mario Monti, as a survey suggested that next month's election could usher in new instability.

The poll by the Piepoli Institute in La Stampa newspaper indicated the center-left would fail to win control of the Senate, preventing it forming a stable government without outside help.

Center-left leader Pier Luigi Bersani is widely expected to seek an alliance with Monti if he falls short in the Senate, which has equal power to the lower house in approving laws.

Monte dei Paschi di Siena (MPS), the world's oldest bank, which is already seeking a 3.9 billion euro ($5.2 billion) government bailout, this week revealed losses on complex financial instruments that could cost it as much as 720 million euros, unleashing a major scandal that is playing into the election campaign.

The bank's biggest shareholder is a charitable foundation controlled by politicians of the Democratic Party (PD), the biggest group in the center-left alliance.

"There will certainly be a negative effect on the Democratic Party," said Maurizio Pessato, the vice chairman of rival pollster SWG. "The question is whether it will be temporary and how intense it will be."

The idea that part of the revenue from big tax hikes imposed by the outgoing technocrat government could be used to rescue a bank is toxic for both the PD and Monti, who is also standing in the election, Pessato said.

"Much of the Italian population sees Monti as someone connected to the financial world. The man on the street will see this as Monti's world, and imagine he is involved."

Politicians rushed to exploit the scandal.

"This stinks of bribes," said Northern League leader Roberto Maroni. "Monti gave MPS 4 billion euros and he must explain why ... He cannot avoid the responsibility he has in this disaster, him and only him."

BERLUSCONI ALLIANCE

The League is part of a center-right alliance led by former premier Silvio Berlusconi that is fighting to rob the center-left of control of the Senate.

In a radio interview, Monti also sought to use the scandal for political reasons, saying the center-left was implicated.

"The Democratic Party is involved in this affair," Monti said. "I'm not here to attack Bersani ... these problems stem from the ugly beast that is the blend of banking and politics."

The Piepoli poll on Friday said the center-left would win the lower house, but saw Berlusconi's center-right taking the key regions of Sicily, Lombardy and Veneto in the Senate race.

The center-left's lead was less than five points in a further three regions, the survey said. A split result would make it difficult for the government to pass legislation in a bi-cameral system where laws have to go through both houses.

Pessato said he expected the scandal to be reflected in a poll by SWG due early next week.

A survey by Pessato's company taken last Wednesday showed the center-left leading on 34.1 percent - a small increase over the week before - against 26.6 percent for the center-right and 12.8 for Monti's centrist coalition, which is so far failing to gain the traction it hoped for against its rivals.

Pessato said the Monte dei Paschi scandal could boost support for the Northern League, a consistent critic of Italian banks, and for the anti-establishment 5-Star Movement, whose leader Beppe Grillo has called for MPS to be nationalized.

Grillo attended an angry meeting of Monte dei Paschi shareholders on Friday and joined a chorus of demands for the management to step down.

(Reporting by Naomi O'Leary; Editing by Barry Moody)

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