Italy seeks way out of crisis after Prodi quits

ROME (Reuters) - President Giorgio Napolitano started crisis talks on Friday meant to rescue Italy from political limbo after Prime Minister Romano Prodi's resignation raised the specter of snap elections.

Italy's 61st government since World War Two collapsed late on Thursday after Prodi lost a confidence vote in the Senate, just 20 months after taking office.

Napolitano, who will consult a long list of political leaders and former presidents until Tuesday, met among others Senate President Franco Marini -- tipped as a possible candidate to lead an interim government.

Such a government would need cross-party backing and would be charged with making the electoral system less unstable.

It is Napolitano's only option if he wants to avoid calling Italians back to the polls immediately.

But opposition leader Silvio Berlusconi, a former prime minister and Italy's richest man, is pressing for snap elections that opinion polls suggest would return him to power.

"There is no reason to waste any more time, we must go to the polls as quickly as possible," Berlusconi, 71, said on Friday at a packed rally in Naples, where a garbage crisis has embarrassed the local centre-left council.

"This is the start of our election campaign for freedom," he said, to shouts of "Silvio! Silvio!" from the crowd.

Berlusconi also denied reports that he would be prepared to back an interim government if it was led by his closest aide, Gianni Letta. "I have never heard of this option," he said.

The centre left, shattered by Prodi's resignation, does not want elections now. But Prodi, who remains caretaker prime minister, said he would not lead an interim government.

"I don't think I am the right person for the job," he told reporters. "I'll just be a grandfather."

LONG IMPASSE

A long political impasse would likely delay sorely needed economic reforms, just when a global slowdown looms. In worried markets, the spread between Italian government bonds and German bunds widened to levels unseen in more than six years.

Analysts said the demise of Prodi's government should not hurt growth prospects because he had been too busy surviving politically to carry out deep reforms, but it could threaten a recent improvement in public finances.

Italians are jaded by the instability of their governments, along with endless political bickering that reached new extremes at Thursday's vote. One senator spat at and insulted another, who fainted and was carried out of the chamber on a stretcher.

Napolitano, an 82-year-old former communist, is known to oppose holding snap polls under the same messy electoral system that saddled Prodi with a razor-thin Senate majority.

But small parties on both sides of the divide fear reforming the voting rules would reduce their weight in future coalitions.

The crisis did not seem to hurt shares, which have been more affected in recent days by global trends. The Milan bourse closed down slightly, in line with other European markets.

Shares in state-owned Alitalia, which is in the final throes of being sold to Air France-KLM, plunged on opening but recovered during the day. A source close to the French airline said the turmoil would not affect the timing of its bid, due in the coming weeks.