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Letta Challenges Renzi in Bid to Hold on in Italy

Italian Prime Minister Enrico Letta
Italian Prime Minister Enrico Letta’s ability to command a majority of lawmakers has been placed in doubt after two months of uneasy collaboration with his party chief, Matteo Renzi, who won control of the Democratic Party in December. Photographer: Alessia Pierdomenico/Bloomberg

Feb. 13 (Bloomberg) -- The fate of Italian Prime Minister Enrico Letta’s government rests in the hands of Matteo Renzi, his party’s head and the premier’s chief antagonist.

Renzi will address the Democratic Party’s council of leaders at 3 p.m. in Rome to settle the power struggle between Letta and the group that gave the 47-year-old premier his job 10 months ago. The Democratic Party, or PD, is Italy’s biggest political group, and Renzi, 39, may use it to make himself premier without passing through a general election.

“The situation remains fluid and prone to surprise, but Renzi now seems poised to take over Letta’s job,” Wolfango Piccoli, managing director with Teneo Intelligence in London, said in a research report today.

The two leaders struggled through uneasy collaboration after Renzi won leadership of the PD in December. Letta has been stymied for two months as Renzi set a new legislative agenda. Renzi crossed the aisle to make a pact on revamping the election law with former Prime Minister Silvio Berlusconi, the opposition leader who was expelled from parliament in November for tax fraud.

As calls for Letta’s resignation built this week, the premier has been defiant. He met Renzi yesterday at the prime minister’s offices and subsequently called a news conference to announce his priorities for 2014. Renzi declined to comment yesterday, and Letta said he didn’t know whether he had his party chief’s support.

Adventure Title

“The title of my adventure is ‘live each day as if it were the last one,’” Letta said in the conference yesterday.

Letta is staking his government’s future on the program he presented that calls for budget reductions, payroll-tax cuts and ways to strengthen the legal system. The judgments from Renzi’s allies weren’t reassuring, with PD lawmaker and Renzi confidant Ernesto Carbone saying in an interview that Letta’s plan was “a copy and paste” of the party chief’s ideas.

Milan’s FTSE MIB Index, which has gained 5.2 percent so far this year, fell 1.1 percent to 19,916.98 at 1:02 p.m. The yield on Italian 10-year bonds rose to 3.78 percent from 3.73 percent late yesterday, while the yield spread with German bunds widened to 209.6 basis points from 201.4.

Letta’s fall would lead to Italy’s fourth government in a little more than two years. The European debt crisis forced Berlusconi, a three-time premier, to resign in November 2011. Mario Monti’s caretaker government was brought down by recession, and inconclusive elections in February 2013 left Letta in charge of a coalition of formerly rival parties.

Letta Appointed

While the legislature is due to expire in 2018, Letta said when he was appointed in April 2013 that the time horizon of his government was 18 months.

If Letta were to resign, Renzi might be able to secure a majority in parliament and become premier without snap elections, la Repubblica reported yesterday. Taking power that way might not appeal to Renzi as he would inherit a fragmented parliament and lack a mandate from voters, said Alberto Gallo, head of macro credit research at Royal Bank of Scotland Group Plc.

“We think it would be a positive for Italy if Renzi became PM eventually, given his greater desire for reform,” Gallo said in a research report today. “But in our view, the most likely outcome is still for Letta to stay.”

To contact the reporter on this story: Andrew Frye in Rome at afrye@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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