Italy president in crisis talks after Prodi quits

ROME, Feb 22 (Reuters) - Italy's president held crisis talks today to determine whether Romano Prodi, who resigned after losing a Senate vote, has enough support to be reappointed prime minister or must be replaced.

''We're a country of madmen,'' said Foreign Minister Massimo D'Alema to one newspaper after Prodi unexpectedly stepped down on Wednesday following a foreign policy defeat in the Senate.

After winning the narrowest election in post-war history to lead the 61st government since 1945, Prodi quit after nine months in the wake of a revolt by the left in his Catholics-to-communists alliance.

Prodi and D'Alema, who both had previous spells as prime minister cut short, know Italy is accustomed to revolving-door politics, which explains why financial markets could largely shrug off the latest convulsion.

President Giorgio Napolitano, an 81-year-old ex-communist, must now end the impasse while Prodi stays as caretaker leader.

Napolitano scheduled more than two dozen consultations with party and parliamentary leaders over Thursday and Friday, which one paper called a game of ''Russian roulette'' for Prodi.

''Any attempt to resuscitate the Prodi government will fail from the outset,'' said Silvio Berlusconi, the media tycoon who hopes to return to power if an election is held. ''The left has never had a majority in this country and never will.'' Berlusconi was the first post-war premier to serve a full five years, although he had to resign and reform his government due to infighting.

SCENARIOS The centre left is pledging continued support for Prodi and Napolitano could ask him to form a new government or face a confidence vote in parliament.

Victory would let Prodi stay in office, but he is not willing to carry on without guarantees from all his allies they will stop their infighting. With policy divisions running deep, it is hard to see how such guarantees could be credible.

Gianfranco Pasquino, politics professor at the Bologna centre of Johns Hopkins University, said a revived Prodi government ''would be hanging by a thread and not last long''.

''There are too many divisions in this government,'' agreed shopkeeper Giacobbe Rubin, 50. ''They could carry on but in three months they would collapse again.'' Another scenario is the formation of a majority crossing the right-left divide, excluding both extremes, and leaning on the Union of Christian Democrats (UDC), reluctant Berlusconi allies.

Prodi says he would not lead such a government and UDC leader Pierferdinando Casini said he was ''incompatible with the far left'' especially on legislation like gay rights, where centrist Roman Catholics and leftists are at loggerheads.

Another scenario is Napolitano asking a veteran like Interior Minister Giuliano Amato to form a technical government or caretaker administration. Failing this, Napolitano would have to dissolve parliament and call an early election.

CONFIDENCE ''At the moment the most likely outcome is that Prodi will be reappointed, so it would have a limited impact on confidence,'' said analyst Luigi Speranza of BNP Paribas.

Euro zone government bonds and the Milan bourse were largely unaffected by the news, with the S&P/MIB index up 0.58 per cent.

Shares in Berlusconi's broadcaster Mediaset rose on hopes a media law threatening its revenues might now be shelved.

Economists envisaged little threat to Italy's growth, which has long lagged the euro zone but began recovering last year.

Ratings agencies Standard&Poor's and Fitch, which downgraded Italy last year, said ratings would not change but, after a deficit-cutting 2007 budget, reforms could now suffer.

The Senate vote was intended only as a motion of support for foreign policy before D'Alema turned it into a test of the executive's strength.

With a one-seat Senate majority, the revolt of two senators was enough to corner Prodi, and that prompted calls to overhaul an electoral system favouring coalitions rather than majorities.

''What needs to be done is a reform of the electoral system real quick -- a system that creates stronger majorities who are better able to rule once they are elected,'' Franco Pavoncello, politics professor at Rome's John Cabot University, said.

REUTERS SAM BD2316