* Monti supporters warn of return to populism
* Berlusconi backers defend withdrawal of govt support
* Italy-Germany bond yield spread seen widening Monday
* ECB’s Asmussen say Monti policy must go on
By Steve Scherer
ROME, Dec 9 (Reuters) - Italy’s political parties began manoeuvring on Sunday before elections expected in February as supporters of technocrat Prime Minister Mario Monti tried to persuade him to stay in politics and continue his economic reform agenda.
Monti has previously said he would be available to serve if needed but did not intend to stand as a candidate, although potential allies in the smaller centrist parties noted that he has not definitively ruled out the idea.
“Everyone’s just waiting for Monti to break his silence and say what he is going to do,” said an official in former Prime Minister Silvio Berlusconi’s People of Freedom (PDL) party who spoke on condition of anonymity. “Everything depends on that.”
Berlusconi abruptly withdrew his support from the government last week, prompting Monti’s decision to resign early and bringing forward the election.
As a Life Senator, Monti may not be able to stand as a candidate himself but he is the undoubted favourite of the business community and could also have a role as Italian president if he does not return to government.
The head of the centrist UDC party Pier Ferdinando Casini said moderates across party lines “identify with the reasonable and responsible policies Monti has made”.
“A large part of civil society does not want to return to the populism and demagoguery of the past. We must give them the political offering they seek,” he told SkyTG24 television.
After three days of tension following Berlusconi’s move, attention turned to the likely reaction when financial markets re-open on Monday.
Much will depend on how investors view the prospect of a possibly messy election campaign pitting the scandal-plagued Berlusconi against a centre-left bloc led by Pier Luigi Bersani, victor in last week’s Democratic Party primary.
The main barometer of investor confidence, the yield on the 10-year Italian government bond, stood at 4.5 percent at the end of last week. This was 323 basis points higher than the yield on the lower risk German equivalent, but well below the 7.3 percent hit last year.
Analysts said some initial jitters were likely in the markets but there was little sign of deep concern from senior business or financial leaders.
“It’s obvious that it would have been preferable to come to the natural end of Monti’s term. But this at least allows us to clarify more rapidly Italy’s political situation. And this is not negative (and) could actually help the country,” said a senior executive at one of Italy’s biggest companies.
Berlusconi’s sudden attack on Monti has opened an election campaign likely to be fought over whether Italy should stick to the technocrat’s fiscal rigour and broadly pro-European economic reforms.
Berlusconi’s centre-right PDL lags the PD by as much as 20 percentage points in opinion polls, and also trails the anti-establishment 5-Star Movement, which has surged to prominence on a tide of public anger against the mainstream political class.
With memories still fresh of the crisis which led to Monti’s appointment a year ago, senior European policymakers lined up to warn that any government would have to pursue broadly similar policies.
“Whoever governs Italy, a founding member of the EU, is going to have to pursue this course with the same seriousness,” European Central Bank executive board member Joerg Asmussen told Germany’s Bild newspaper.
Martin Schulz, the German president of the European parliament - whom Berlusconi once compared with a concentration camp guard - told Italy’s Ansa news agency that a return by the 76 year-old billionaire would be “menace for Italy and Europe”.
Monti, a former European Commissioner, came to power at the height of the financial crisis a year ago and won praise for restoring Italy’s credibility with investors and European partners after the scandal-plagued Berlusconi era.
President Giorgio Napolitano, the 87 year-old former communist who will have to dissolve parliament, said on Sunday he would make a statement in a week’s time, when he is due to issue his traditional Christmas greetings.
Once he dissolves parliament, elections must be held within 70 days and most commentators said February now seemed the most likely time. The election will take place during a recession which has driven up unemployment, cut into living standards and caused a mood of deep national gloom.
“Eggs and potatoes, eggs and potatoes, that’s all we can afford to eat right now,” said Roberta Uzzo, who lives near the ancient walls of Rome. “It’s a very ugly period. My husband is unable to find any work and with one sole income it’s very difficult to go forward.”