Italy Prime Minister Letta to resign on Friday, Renzi seen taking over

UPDATE — Italian Prime Minister Enrico Letta will tender his resignation on Friday after his Democratic Party (PD) called for him to step aside to make way for a new government, a statement from the premier's office said.

Letta will hand his resignation to President Giorgio Napolitano, who is widely expected to ask PD leader Matteo Renzi to form a new government.

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Italian Prime Minister Enrico Letta faces a showdown with his own center-left party on Thursday that could lead to his resignation and the appointment of Democratic Party leader Matteo Renzi as head of a new government within days.

Letta, a low-key moderate appointed to lead the cross-party coalition patched together after last year's deadlocked elections, is fighting for his political future after growing criticism from Renzi over the slow pace of economic reform.

A meeting of the 140-strong leadership committee of the Democratic Party at 3 p.m. (1400 GMT) will decide whether he has the backing of his party to continue, or will be forced to stand aside less than a year after taking office.

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The latest bout of turmoil in Italy, the euro zone's third-largest economy, has so far had little impact on financial markets, in contrast with the volatility seen during previous crises, such as the deadlock after last year's election.

However, the continual uncertainty has held back any radical effort to revive an economy struggling to emerge from its worst slump since World War Two and cut levels of unemployment not seen since the 1970s.

If Renzi succeeds in ousting Letta, as most media and political commentators expect, he would be Italy's third unelected prime minister in succession after the technocrat Mario Monti and Letta, named as premier after weeks of fruitless wrangling between rival parties.

Renzi, an ambitious 39-year-old whose main experience of government has been as mayor of Florence, is not a member of parliament and has never stood in a national election.

Having burst onto the political scene promising renewal and a break with the Byzantine traditions of Italian politics, he could now gain power in a backroom maneuver reminiscent of the revolving door Christian Democrat governments of the past.

"This is a very dangerous operation by Renzi both for the country and for himself," Giovanni Toti, political adviser to former center-right Prime Minister Silvio Berlusconi, told RAI state television.

"He was supposed to be the outsider who was going to renew the PD. Now as soon as he gets close to power, he's behaving exactly like all the others," he said.

Loyal alliance

Tensions have been brewing ever since Renzi's overwhelming victory in a party leadership primary in December, but the pressure on Letta has suddenly intensified this week as powerful lobbies including the main industry association Confindustria have joined calls for faster action on reforms.

On Thursday, Angelino Alfano, head of the New Centre Right party that supports the ruling coalition, said Letta could count on a "loyal, correct and fruitful alliance" as long as he retained the backing of the PD.

But he left it open whether he would continue to support the government if Letta were forced to step down in favor of Renzi, who has backed a number of policies unacceptable to the center-right, including support for gay civil unions.

"We're not taking anything for granted, and we will consider this possibility once it is confirmed," he told Canale 5 television.

If the center-right withdraws support, Renzi, who is viewed with deep skepticism by the left of his party, may seek the support of the small Left Ecology Freedom party.

Italian media have also speculated that he may be able to attract some defectors from the anti-establishment 5-Star Movement, but it remains unclear how stable such support would be in the testing parliamentary battles needed to pass any wide-ranging reforms.

His accord with Berlusconi to overhaul the much-criticized electoral law, a measure touted by all sides as a necessary step to creating stable government, has already encountered delays in parliament as scores of amendments have been tabled.

(Reporting By James Mackenzie; Editing by Kevin Liffey and Will Waterman)