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Italy's Political Leaders Keep Everyone Guessing

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Political intrigue in Rome is keeping investors, economists and even politicians guessing over who will actually run in Italy's 2013 elections, and why.

Italian lawmakers have begun debating the country's 2013 budget on Tuesday, after which technocratic prime minister Mario Monti has said he would resign, bringing the issue of leadership to the fore.

According to the latest voter polls, Monti's approval ratings are at a 13-month low, falling from highs of 71 percent - when he appeared to be Italy's economic"savior" - to the harsh reality of cutbacks on an austerity-weary public. The latest poll from the SWG Institute reveals that 61 percent of Italians are opposed to Monti running for a second term.

The results have added to uncertainty over Italy's future political leadership and attempts at structural reform.Euro zone politicians want Monti to run in the 2013 elections, expected to be held in February.

Berlusconi Joins the Fray

The former Italian prime minister Silvio Berlusconi and leader of the center-right People of Liberty (PDL) party has also confounded the economic and political establishment after his party withdrew support for Monti's government ten days ago.

Since then, Berlusconi has announced he would stand for election, before performing a volte face, insisting he would step aside should Monti decide to run.

But Berlusconi's behavior has suggested he still harbors political ambitions.

He has been critical of Monti's technocratic leadership and austerity measures broadcast on channels within the Mediaset family, his media outlet.

During an interview on Sunday on a chat show on Canale 5, one of his television channels, Berlusconi said if he was elected he would reverse budget cuts introduced by Monti, even as he reiterated that he would not run if Monti decided to stand for election.

"We are waiting for a response from Professor Monti," Berlusconi told the "Domenica Live" chat show. He said he would cancel an unpopular property tax and steer away from what he called "German" austerity policies.

Read More: Berlusconi's Love Live Lost in Translation

"Italians don't like austerity," Alastair Newton, Senior Political Analyst at Nomura told CNBC. "And I think the Berlusconi-owned press has tainted Mario Monti as being the tool of [Chancellor] Angela Merkel, and German-imposed austerity is not popular, as the Italians see it."

"The interesting period is in the run-up to the election," Newton added. "If it looks like Berlusconi may be posing a serious electoral threat – and you can't rule it out, he does have a certain charisma, he does have a lot of the press supporting him – he's going to campaign on [anti-German line] and say 'Hey, vote for me and it's party time with Silvio again'."

The Plot Thickens

A senior member of Silvio Berlusconi's PDL party,has added to the confusion by telling Class CNBC on Monday that Monti could play an important political role in the future by leading a federation of Italian "moderates".

"I would like to see Prime Minister Mario Monti become a federator of all the Italian moderate political forces, political parties and political groups," Franco Frattini, a former foreign minister under Berlusconi, said.

On Sunday, it emerged the PDL party was encouraging Mario Monti to run for a second term as the leader of an alliance of centrist parties in order to prevent a win by the left-of-center Democratic Party (PD) led by Pier Luigi Bersani. Berlusconi also said during his Sunday interview that, above all, he wanted to ensure that the political left did not win.

Courting Monti to Keep Bersani Out?

The PDL are justified in their concerns over the left. The SWG Institute's poll showed that Bersani's party has 31 percent of voters' support, compared to 16.5 percent for Berlsuconi's PDL party.

Frattini told Class CNBC that the majority of the Berlusconi-led People of Liberty (PDL) party had decided to support Monti for a second term, though there were "dissenting" voices within the party.

A poll by the Italian newspaper Corriere Della Sera this weekend reported that only 19 percent of PDL members supported Monti running for the premiership.

Seventy-eight percent of the PDL party thought a Monti run would be negative, reflecting the views of center-right voters, among whom 82 percent were opposed to a Monti run.

Read More: Most Italians Oppose Monti Run

"There are dissenting points of view in the PDL but the majority - and former prime minister Berlusconi – have decided that…if Monti [resigns] we will see. I don't like making political hypotheses or ideas if there are no clear decisions yet."

The conflicting signals coming from Berlusconi's camp are somewhat explained by Berlusconi himself,who said during Sunday's interview that what matters for him, above all, is that the Left does not win.

Monti now has a 33 percent approval rating, according to the latest poll, and so although he is unpopular, he is not as unpopular as the PDL party led by Berlusconi.

As the political drama unfolds and markets await Monti's decision, expected on Friday, economists are jittery.

"Monti needs to tell everyone what he's going to do," Newton told CNBC. Likewise, Berlusconi remains aloof about a potential return to dominance in Italian politics and has kept the markets and public guessing.

Frattini told Class CNBC that rather than return to politics, Berlusconi had "never left."

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