* Napolitano meets parties for consultations on Friday
* Centre-left bid to form government blocked
* Speculation grows that government could be led by outsider
By James Mackenzie
ROME, March 29 Italian President Giorgio
Napolitano meets political leaders on Friday in a bid to break a
month-old stalemate after an election left no party able to form
Centre-left leader Pier Luigi Bersani, who won the biggest
share of the vote in the February 25 vote but fell short of a
majority, told Napolitano on Thursday he had failed to secure
enough support from rival parties to form a government.
The 87-year-old Napolitano, whose own term ends in mid-May,
said he would personally meet representatives from the main
parties to assess what options remain to prevent an early return
to the polls.
The deadlock in Italy, the euro zone's third largest
economy, comes as the Cyprus banking crisis has revived fears of
renewed financial market turmoil that could threaten the
stability of the currency bloc.
After five days of talks, Bersani failed to secure a deal
with either Berlusconi's centre-right bloc, the second-largest
force in parliament, or ex-comic Beppe Grillo's 5-Star Movement,
which holds the balance of power.
The centre-left leader rejected Berlusconi's demand that he
be allowed to decide Napolitano's successor as head of state,
and Grillo's populist group maintained its refusal to support a
government led by any of the big parties it blames for Italy's
social and economic crisis.
Napolitano's options now include appointing a figure from
outside politics to lead a technocrat government like that of
outgoing Prime Minister Mario Monti or a cross-party alliance
backed by the big parties.
Among possible candidates are Fabrizio Saccomanni, the
widely respected director general of the Bank of Italy, the head
of the constitutional court Franco Gallo or former prime
minister Giuliano Amato.
Napolitano meets representatives from former prime minister
Silvio Berlusconi's People of Freedom (PDL) party at 1000 GMT,
before seeing the anti-establishment 5-Star Movement and finally
Bersani's Democratic Party (PD) in the evening.
The political gridlock has fed growing worries about Italy's
ability to confront a prolonged economic crisis that has left it
in deep recession for more than a year, with a 2-trillion-euro
public debt and record unemployment, especially among the young.
Rumours have been circulating for days that ratings agency
Moody's is preparing to cut its rating on Italy's sovereign
debt, which is already only two notches above "junk" grade,
partly due to the uncertain political outlook.
The immediate pressure from the bond markets has been taken
off during the Easter break but failure to make progress in
securing an agreement could lead to new turbulence next week
after a steady rise in Italy's borrowing costs in recent days.
However the prospects appear slim of appointing the kind of
government capable of turning around an economy that has been in
decline for more than a decade, with deep-rooted problems
ranging from corruption to suffocating bureaucracy.
Napolitano has made clear that he does not want Italy to go
back to new elections immediately, not least because the widely
criticised election law is likely to lead to a similar
However even a so-called "president's government" led by a
political outsider, would need the backing of parliament, which
may be difficult to secure given the deep divisions which remain
between the parties.
Many are turning their thoughts towards new elections, with
Berlusconi's centre-right bloc confident that the momentum
created by the 76-year-old billionaire's surge in the final
weeks of the last election campaign will continue.
"We're not afraid of going back to vote," Daniela Santanche,
one of Berlusconi's most faithful allies told the daily La
Repubblica. "The opinion polls are telling us that we'd win and
the PD would lose 150 deputies," she said.