Prodi braves Senate vote as pressure grows to quit

ROME - Italian Prime Minister Romano Prodi will brave a confidence vote in the Senate on Thursday despite expectations that he will lose and be forced to resign.

The crisis could bring new elections which, according to opinion polls, would be likely to return former prime minister Silvio Berlsuconi to power. In Italian markets, the political turmoil added to the nervousness over global trends.

Prodi sought confidence votes in both houses after a small Catholic party withdrew its support for him, erasing his tiny majority in the upper house. Further defections mean even the support of unelected lifetime senators is unlikely to save him.

But the 68-year-old academic, known in Italy as the "professor", decided to go ahead with the vote, rejecting the advice of President Giorgio Napolitano to step down after winning an easier vote in the lower house on Wednesday.

"I have told the president I will go to the Senate at 3 p.m. (2 p.m. British time)," Prodi said in a statement.

Even one of the prime minister's most acerbic critics, Senator Roberto Calderoli of the far-right Northern League, said he admired his pluck: "He will lose the confidence vote but he will fall with a soldier's honour for having fought to the end."

The centre-right opposition, led by Berlusconi who was beaten by Prodi in 2006 elections, hopes Napolitano will then call early elections which, according to opinion polls, Berlusconi would win by a clear margin.

But there is a groundswell of pressure in Italy for reforms to election rules, tampered with by Berlusconi before the last elections, which are widely blamed for the unstable system of fragmented coalitions whose bickering dogged Prodi's tenure.

TECHNICAL GOVERNMENT

Commentators and analysts warn that holding early elections soon, without changing the messy voting rules, would merely prolong instability which has already impeded economic reforms needed to stop Italy underperforming its euro zone peers.

Prodi, an economics professor and former president of the European Commission, takes credit for tidying up the public finances of the euro area's third largest economy, but new data show its consumer confidence at its lowest in 2-1/2 years.

The turmoil took its toll on markets, where spreads between Italian government bonds and German bunds widened to near levels not seen for 6-1/2 years. Traders said the upheaval had further encouraged a flight to quality as the world economy slows down.

"A couple of basis point in terms of the spread of longer bonds are due to political uncertainty," said one bond trader.

The Senate debate starts at 2 p.m. British time with Prodi expected to speak at 4:45 p.m. British time and voting at 7 p.m. British time.

To win, he needs the support of a handful of unelected life senators who have rescued him in previous votes and some elected senators would have to throw him a lifeline by not showing up for the vote, lowering the quorum.

If he loses, Napolitano could ask Prodi or another senior politician or technocrat to form an interim government with a mandate for electoral reform before new elections are called. Italy has turned to technical governments before in times of crisis and some economists see it as quite a positive option.

"It often doesn't make much difference who governs Italy but technical governments have actually done quite well in the past," said Holger Schmieding of Bank of America.