By James Mackenzie and Giselda Vagnoni
ROME Feb 27 The head of Italy's main business association voiced optimism on Wednesday that political parties could resolve a post-election stalemate but said they must move quickly or financial markets would turn hostile.
Giorgio Squinzi, president of Confindustria, said the situation was "extremely serious" but he was confident the main parties had enough in common to prevent the crisis slipping out of control.
"They need to give immediate answers and they can do it," he told Reuters in an interview. "We certainly can't be left hanging for a month with international markets ready to launch all kinds of speculative operations."
However he dismissed suggestions that the election deadlock threatened to re-ignite the debt crisis which sent Italy's borrowing costs rocketing and brought the euro zone to the brink of collapse in 2011.
"Italy is not a destabilising element for Europe," he said.
The cautious optimism from Squinzi, who took over as head of Italy's biggest employers' federation last year, contrasted with the initial shock that greeted the Feb. 24-25 election, with global financial markets plunging at the prospect of fresh instability in the euro zone's third-largest economy.
Markets appeared to have regained some calm on Wednesday with the first auction of long-term Italian bonds passing off smoothly. The Treasury had to pay the highest yield in four months, but demand for the paper was strong.
Squinzi's predecessor at the head of Confindustria, Emma Marcegaglia, spent much of her time making fruitless calls on then-prime minister Silvio Berlusconi's government to undertake serious reforms to help Italian companies compete.
He said Italy, Europe's second industrial manufacturing power behind Germany, needed measures to improve competitiveness and growth to pull it out of the stagnation and slump that has held it back over the past decade.
But he played down fears that the bitterly divided political parties, still reeling from an election that left none of them with a majority in parliament, would be incapable of reaching an agreement.
He said both the centre-left coalition of Pier Luigi Bersani, which won the lower house vote but failed to get the numbers to control the Senate, and Berlusconi's centre-right coalition had many "sensible people".
"I think in the end, good sense will prevail," he said. "It would not make much sense to vote again now."
But, asked whether he agreed that the differences between the parties meant made it unlikely that any new government would survive a full five-year term, he said: "At the moment, I'd be inclined to agree but let's not set limits on providence."
He said Confindustria had had no contact with Beppe Grillo's anti-establishment 5-Star Movement, the only party to come out of the vote with its position enhanced. "We tried to get in contact with them before the election but got no response."