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It's not 'game-over' for Berlusconi yet, analysts say

Silvio Berlusconi;Renato Brunetta
Franco Origlia | Getty Images News | Getty Images
Silvio Berlusconi;Renato Brunetta

After making a dramatic U-turn to support Italian Prime Minister Enrico Letta, analysts are asking what's left for Silvio Berlusconi after his party's members defied him in such a public and humiliating way.

Letta won a vote of confidence on Wednesday after Berlusconi joined the majority of his party members by saying that he would support the prime minister in the vote -- despite having sparked the crisis himself.

(Read more: Letta wins confidence vote as Berlusconi backs down)

At the weekend, Berlusconi ordered five of his ministers to resign from the already fragile coalition government of which his center-right "People of Liberty" (PdL) party and Letta's center-left "Democratic Party" (PD) make up the most part. However, with reports that up to 40 PdL members were ready to defy their leader in support of Letta, Berlusconi made what one senior market analyst called a "tactical withdrawal."

Letta's victory caused Italian stocks to rally and the country's borrowing costs to fall as investors heaved a sigh of relief that the country would not have to go through another punishing round of elections that would have further delayed much-needed reforms.

Letta was now in a much more powerful position, Geoff Andrews, senior lecturer in politics at the Open University, told CNBC Europe's"Squawk Box" on Thursday.

"Berlusconi's climbdown was a major victory for Letta in the short term. He is in a much stronger position than yesterday and deserves a lot of credit for how he presented his speech yesterday calling for national unity and trying to put national interests above party interests."

"But he's got a long way to go, the coalition was created from a position of weakness and it's a left-right coalition and nothing is clear yet. Many economic reforms need to be implemented," he added.

However, any hopes Berlusconi's defeat would bring a new period of stability for Italian politics were soundly dashed early Thursday after U.S. credit ratings agency Moody's warned that its viewed the fragility of the coalition government as "credit negative" and that the country was unlikely to meet European Union deficit limits.

Italy has one of the largest debt piles in the single currency area at 130 percent of gross domestic product and is faltering economically.

One analyst said it was too early to say whether the government could now get on with the economic reforms, with arguments over a planned sales tax increase still weighing on the fractious coalition of center-right and center-left ministers.

(Read more: Silvio Berlusconi's 'greatest' hits)

"While it appears Mr Berlusconi may have overplayed his hand this time, he's still shaping events and it's a tad premature to talk about a post-Berlusconi era," Nicholas Spiro, head of Spiro Sovereign Strategy warned.

"More importantly, just as a weakened 'Il Cavaliere' ('The Knight,' Berlusconi's nickname) doesn't solve Italy's underlying economic and financial problems, a continuation of the Letta government doesn't provide any kind of breakthrough," he added.

(Read more: Italy PM Letta facesshowdown in parliament after Berlusconi crisis)

Just as the government's troubles might not be over, Berlusconi too is not off the hook just yet. On Friday, the Italian Senate votes on whether to expel the billionaire media mogul from political life for a tax fraud conviction he received in August.

The Open University's George Andrews said Berlusconi was facing his "most difficult moment."

"He faces expulsion form the Italian parliament and he won't be protected by parliamentary immunity [if he is]. As the drama unfolded yesterday you could see his authority almost diminishing by the minute, but we know that he's a great survivor and even outside parliament he could be dangerous so, in my view, it would be wrong to write him off just yet."

Despite all his troubles, Michael Hewson also said it wasn't the last we'd hear of Berlusconi.

"While he may have run into a brick wall on this occasion Berlusconi has never lacked the capacity to surprise, so I would doubt that we have heard the last of him in this regard," Hewson from CMC Markets remarked on Thursday.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

Follow us on Twitter: @CNBCWorld

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