Italian lawmakers will begin voting on Thursday to elect a new president, in the hope that they can end the country's political impasse, over which concerns are growing.
Seven weeks after the general election, which left no party with a viable majority in parliament, outgoing Prime Minister Mario Monti remains head of a caretaker government and vital reforms are on hold until a new administration can be formed.
The divided parties are due to begin voting on Thursday to choose a successor to President Giorgio Napolitano, whose mandate expires on May 15.
Thursday's election is the next key step, according to Morgan Stanley, in revealing whether the Italian public is likely to head back to the polls or not.
There are two choices for Italy, a "hardball option" and a "consensus option", said JPMorgan analyst Alex White, in a research note.
"The PD (Partito Democratico) could push to appoint a partisan candidate of its choice. This would enable it to continue pursuing the option of a minority government, in this parliament, with the new president's approval. Romano Prodi is the most talked about partisan candidate," White said.
"The other option would be for the PD to propose another center-left leaning candidate, but someone who is seen as more of a consensus figure... This would, we believe, leave the door open to some deal with the center-right which would avoid new elections, but would not of itself be sufficient to secure support for a deal."
Pier Luigi Bersani, the leader of the center-left PD alliance, won control of the lower house in February but fell short of the Senate numbers needed to gain a parliamentary majority. He has since failed in his attempts to form a government. Bersani has been rebuffed by 5-Star leader Beppe Grillo and refuses to share power in a "grand coalition" with center-right leader Silvio Berlusconi, who has also demanded a say in choosing the next president.
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Other presidential candidates now being discussed include former prime ministers Giuliano Amato and Massimo D'Alema, and former European Commissioner Emma Bonino.
However all have drawn objections, with Prodi ruled out by Silvio Berlusconi's center-right alliance. Amato and D'Alema are both viewed with misgivings as representatives of the traditional political elite, and Bonino is seen as hostile to the still-powerful Catholic church.
The situation behind the scenes appears to be becoming more difficult to manage, White said, adding that the political left, which includes the PD party, looks dangerously divided.
"Near-term, we should get some indication of the route ahead within the next two weeks (once the Presidential election process is complete), but likely little by way of concrete action until after May 15 when a new President will be appointed," White said.
Monti and Bersani Meet
On Monday, Monti and Bersani met and agreed to seek "the maximum possible convergence of opinion among the political forces on the choice of an authoritative candidate who would be able to represent national unity".
An alliance between Monti and Bersani would be significant because their two combined blocs would theoretically have the numbers necessary to elect a president on their own. However, they may be reluctant to weaken the authority of the next head of state by forcing an election over the objections of the center-right, which won almost as many votes in the election as the center-left.
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