* Centre-right wants agreement on economic priorities
* Berlusconi says government must help end recession, spur
* Letta says time has come for EU to soften austerity
By Philip Pullella and James Mackenzie
ROME, April 25 Italy's prime minister-designate
Enrico Letta started "encouraging" talks on Thursday for a new
government to end two months of political deadlock, but said
significant differences with the centre-right would take more
time to iron out.
Letta, the 46-year-old deputy head of the centre-left
Democratic Party (PD), said he would use Friday as a "day to
reflect" on his chances of piecing together a broad coalition to
govern the euro zone's third-largest economy.
"I think we'll need many more hours because we're coming
from a period of deep mutual opposition and the differences that
still remain are very significant," he told reporters after a
day of talks that included a two-hour meeting with officials
from Silvio Berlusconi's People of Freedom (PDL) party.
"I was encouraged by everyone but that does not resolve the
problems," he said.
President Giorgio Napolitano, who appointed Letta on
Wednesday, is eager for him to form a broad coalition before
financial markets open on Monday and seek confidence votes from
parliament's two houses early next week, political sources say.
The PDL delegation told Letta he had to agree to economic
priorities on growth and tax cuts to win their support.
"We are satisfied by how the meeting went but we are
cautious because there are still issues that have to be
resolved," PDL secretary Angelino Alfano said.
Alfano said the PDL was seeking Letta's backing for eight
points on how to revive the economy, including tax breaks for
companies that hire young people, cutting red tape and the
abolition of a much-hated tax on primary residences.
Removing the tax and repaying contributions paid for 2012
was a key plank in the centre-right campaign before the
inconclusive February elections, which gave the PD a majority in
the lower house but not in the Senate. The PD says it is willing
to reduce the tax but scrapping it would damage the budget.
Markets have reacted favourably to the prospect of an end to
the political deadlock, with bond yields and the spread with
comparable 10-year German bonds falling.
Letta is viewed as capable of governing by consensus. An
opinion poll for Italian state television said he would enter
office with a 43 percent approval rating.
The next government is expected include the PD, Silvio
Berlusconi's PDL, as well as caretaker Prime Minister Mario
Monti's centrist group, both of which have said they will
support the government.
Letta is a moderate who speaks fluent English and at 46
would be one of Italy's youngest prime ministers, representing a
generational change from the era of Berlusconi and Monti.
Berlusconi told an Italian television station it did not
matter who headed the government as long as it enacted reforms.
"The important thing is that there is a government and that
there is a parliament that can approve measures that we
absolutely need to emerge from the crisis of recession and get
back on the path of growth," Berlusconi said.
Accepting his mandate on Wednesday, Letta said Italy faced
an untenable situation and the government must provide answers
on jobs, poverty and the crisis facing small businesses in a
recession that now matches the longest since World War II.
Letta said changing European policy to focus more on growth
and less on austerity would be "one of my obsessions" if he took
5-STAR MOVEMENT, LEAGUE, CONFIRM OPPOSITION
Letta began the consultations at parliament early on
Thursday morning with smaller groupings, including the Left
Ecology and Freedom party, which reiterated that it would remain
The anti-establishment 5-Star Movement, the largest group in
the lower house Chamber of Deputies, has also said it would sit
in the opposition, but would support specific reforms.
The Northern League, a former ally of Berlusconi's PDL, also
reiterated that it would not join the government but said it
would cooperate on some reforms.
Participants at Thursday's meetings said there were no
specific requests about the distribution of ministerial posts,
expected to be filled by technocrats and politicians.
Italian media have already begun speculating on how the
posts might be carved up among politicians and technocrats.
The economy ministry could go either to Fabrizio Saccomanni,
the Bank of Italy's director general, or Carlo Padoan, chief
economist at the Organisation for Economic Cooperation and
Development (OECD), according to Italian media.
Alfano has been tipped by some to become deputy prime
minister, a choice that would placate Berlusconi but upset some
on the left of the PD.
The industry and labour ministries could go to politicians
and the foreign affairs portfolio to Monti or former Prime
Minister Massimo D'Alema of the PD, local media speculated.
The PDL and PD had previously failed to reach a deal but
Napolitano twisted their arms on Saturday when he was re-elected
to an unprecedented second term and threatened to resign unless
parties tried to find common ground to pull Italy out of its
political rut and work on institutional reforms.