* Monti government survives two confidence votes, still at
* President urges calm
* Centre-right withdraws support
* Berlusconi comeback plan criticised by minister
ROME, Dec 6 (Reuters) - Silvio Berlusconi's party withdrew
its support for Prime Minister Mario Monti on Thursday, raising
the risk of a snap election in Italy, but President Giorgio
Napolitano said he would work to avoid a crisis and there was no
need for alarm.
The centre-right People of Freedom (PDL) party walked out of
a Senate confidence vote on a package of economic measures and
abstained in a separate confidence vote in the lower house
following criticism of Berlusconi by a senior minister.
Monti's government survived comfortably but the risk it
could fall remained as tensions rose between the parties that
have backed the technocrat government over the last year.
Head of state Napolitano, who makes the final decision on
whether to call an election, said there was no need for alarm on
international markets and Italy's institutions were strong.
"There are pre-electoral political tensions that even
outside Italy can be understood without creating alarm about the
institutional strength of the country," Napolitano said.
PDL secretary Angelino Alfano said the party had not wanted
to bring the government down on Thursday but would decide over
the next few days whether to do so. "If we had wanted to make it
fall, we would have already today given a vote of no
confidence," he told reporters.
If the government does fall, an election would likely be
called only a few weeks earlier than the expected date in early
March, but such a development would upset investors nervous
about what will follow Monti.
With all parties now clearly in campaign mode, Alfano said
that Berlusconi had told him of his intention to run following
strong indications on Wednesday that he would return to the
frontline as the PDL election candidate.
The PDL move on Thursday followed comments by one of Monti's
ministers saying Berlusconi's return could be bad for Italy.
Napolitano said a turbulent end to the five-year legislature
must be avoided so Monti's government could complete its
programme and the prime minister said he would await the
president's judgment on Thursday's political drama. The
president will meet Alfano on Friday.
Napolitano has previously said he will not call elections
until parliament has approved a package of economic reforms.
The political confusion helped drive up Italian bond yields
but the impact was relatively contained. The premium investors
demand to hold Italian 10-year BTP bonds rather than lower-risk
German Bunds widened to 330 basis points, having fallen below
300 points earlier in the week.
International markets are worried about what will happen
after Monti steps down. The respected former European
Commissioner has restored confidence in Italy since he took over
a year ago from the flamboyant and scandal-plagued Berlusconi.
The centre-left Democratic Party (PD), which is the main
element with the PDL of a cross party alliance sustaining Monti,
indicated it could ask Napolitano to dissolve parliament if the
government could not count on the support of Berlusconi's party.
The conflict underlined the deep uncertainty in Italian
politics before next spring's election and weakened bond prices,
which have come back under control since reaching critical
levels before Monti's takeover.
Berlusconi's statement on Wednesday suggested that he wanted
to exploit public anger over austerity measures to revive the
fortunes of the party he founded and bankrolled, which has
slumped badly in opinion polls over the last year.
The former premier said the situation was much worse than
when he stepped down and Italy was on the edge of an abyss.
In a television interview early on Thursday, Industry
Minister Corrado Passera expressed strong reservations about a
return by the 76-year-old billionaire, who left office last year
as investors despaired of him addressing the country's economic
crisis and Italy seemed headed for a Greek-style crisis.
The stand-off deepened the confusion surrounding the
election and threatens to open a severe political crisis in the
euro zone's third largest economy.
Berlusconi accused Monti's government of dragging Italy into
an "endless recessive spiral". Passera retorted that most of
Italy's deep economic problems were the result of a decade of
Berlusconi, who was in power for most of the past 10 years,
faces deep divisions within the PDL, which is split between
loyalists opposed to Monti and other factions, including many
who want to continue backing the government's reform agenda.
Former Foreign Minister Franco Frattini, a leading PDL
moderate who wants Monti to come back as premier after the
election, defied party orders to abstain in the lower house
vote, together with at least three other deputies.
Analysts say the party could easily fall apart before the
election, leaving a void on the centre-right which has already
lost substantial ground to the populist 5-Star Movement of
comedian Beppe Grillo which is second in opinion polls after the
Disillusioned PDL supporters are also believed to be a
substantial bloc of the up to 50 percent of voters who say they
would abstain in an election or have not made up their minds.
Berlusconi's indecision has further undermined his party,
whose support is now at less than half the level that won it a
landslide election victory in 2008.