ROME (Reuters) – Italian Prime Minister Silvio Berlusconi suffered a shattering loss in his northern stronghold of Milan on Monday in local elections that threaten to unbalance his fractious center-right coalition government.
Already enmeshed in three corruption trials and a scandal over underage prostitution, the 74 year-old premier lost control of Italy's financial capital, the base of his vast business and media empire, as well as a string of other towns and cities.
With most votes counted, leftist Giuliano Pisapia was set to take Milan's city hall with some 55 percent of the vote against around 46 percent for center-right mayor Letizia Moratti.
"It's clear we have lost. The only thing to do is to hold our nerve and carry on," Berlusconi told reporters accompanying him on a trip to Romania.
Among a series of other losses, the southern port of Naples, Italy's third largest city, went to the opposition Italy of Values party by a landslide and the results raised the prospect of national elections before the scheduled 2013 date.
The center-left easily held on to power in Turin and Bologna in the first round of voting and the latest blow threatened to expose divisions in the ruling alliance between Berlusconi's PDL party and the pro-devolution, anti-immigrant Northern League.
The League, whose support is vital to Berlusconi's thin majority in parliament, also suffered heavily, losing control of once-impregnable cities such as Novara or Pavia to deepen alarm in the party over their links to the struggling prime minister.
"This is a very heavy defeat and the big loser is the premier," said Leonardo Boriani, editor of the Northern League party newspaper La Padania, which has sniped repeatedly at the PDL in recent weeks.
Interior Minister Roberto Maroni, one of the most senior Northern League ministers, said the result did not threaten the survival of the coalition but it was still a "slap in the face" and a sign that the government needed to do better.
"This is the first defeat for Berlusconi's center-right coalition since they came back to power, and it sends a clear signal of voters' disillusionment," said Maurizio Pessato of pollsters SWG.
"These results make early elections more likely, possibly next year, and I don't see any chance of meaningful economic reforms being implemented by a lame duck government."
SLUGGISH ECONOMY
As the government prepares to bring forward plans to slash the budget deficit by 40 billion euros ($57 billion) after ratings agency Standard and Poor's cut its outlook for Italy's A+ rating to "negative" from "stable," the stakes are high.
Italy has one of the most sluggish economies in Europe, more than a quarter of its young people are unemployed and government policy is constrained by the need to contain a debt mountain equivalent to some 120 percent of gross domestic product.
Berlusconi's decision to travel to Romania on Monday was widely interpreted as a sign he expected defeat but senior ministers have ruled out any change of course before national elections due in 2013.
After a bitter campaign marked by accusations of smear tactics and dirty tricks, economic stagnation trumped other issues and voters punished the ruling party as they had in other European countries including Germany and Spain.
Italy is the only euro zone economy in which citizens are poorer on average than they were 10 years ago and, although it has succeeded in containing new borrowing, the government has struggled to stimulate the economy.
Berlusconi's government last month cut its growth forecast for this year to 1.1 percent from 1.3 percent and cut next year's outlook to 1.3 percent from 2.0 percent.
S&P's lowered its credit outlook on Italy this month due to its weak growth and failure to adopt reforms, although worries of an immediate impact on the markets eased after the Treasury sold long-term bonds near the top of its target range on Monday.
After being punished for initially calling the vote a referendum on his popularity and policies, Berlusconi blanketed the airwaves with trademark tirades against his longtime enemies: the left and "communist" magistrates.
His last minute television blitz, to which opposition parties were not given the chance to reply, prompted complaints that he was abusing his domination of the media, and magistrates in Rome opened a formal investigation.
(Additional reporting by Silvia Aloisi and Ian Simpson in Milan and Giuseppe Fonte in Bucharest; Editing by Louise Ireland)
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