By Stephen Brown and Silvia Aloisi
ROME (Reuters) - Conservative billionaire Silvio Berlusconiwon a third term as Italy's prime minister on Monday with anunexpectedly strong mandate for reform, but warned of toughtimes ahead for a country facing deep economic problems.
Centre-left rival Walter Veltroni conceded defeat whenearly results from a two-day election showed the 71-year-oldmedia magnate Berlusconi would control both houses ofparliament.
This should enable him to push reforms through parliament,unlike his predecessor, but many Italians are disillusionedwith politics and doubt any government can quickly cure theills of the European's Union's fourth-largest economy.
"The months and years ahead will be difficult," Berlusconitold state television in a live phone call.
But referring to two issues that symbolise Italy'spolitical and economic stagnation, he vowed: "We'll strive toresolve immediately the garbage crisis and Alitalia'sproblems."
Unions are blocking Air France-KLM's bid for theloss-making Italian airline and garbage piled up this year inthe streets of Naples before being cleared for the election.
Berlusconi, who has vowed to cut taxes and rein in Italy'shuge debt, had been widely expected to win a clear majority inthe lower house but not in the Senate.
Pollsters' projections, based on partial results, gaveBerlusconi a 99-seat majority in the 630-member lower house andan advantage of up to 30 seats in the Senate, which has 315elected and seven lifetime senators.
That contrasts with the two-seat Senate majority that thelast government had under Romano Prodi, who resigned in Januaryjust 20 months into his five-year term. Berlusconi had set hissights on a 20-seat majority in the Senate.
Veltroni, the 52-year-old former Rome mayor, calledBerlusconi to "wish him luck". His Democratic Party performedsolidly but Prodi's former hard-left allies were in danger ofnot winning a single seat.
POLITICAL WATERSHED
Berlusconi's pledges include liberalising the economy aswell as getting tough on crime, but critics say he failed tocarry out pledges to revolutionise Italy when prime ministerfor seven months from April 1994 and from 2001-2006.
His far-right allies in the anti-immigrant Northern Leaguemade gains and their outspoken leader, Umberto Bossi, who oftenthreatens to take up arms, will seek to influence the nextgovernment.
The election could mark a watershed in Italian politics,with a handful of parties winning seats rather than more than20 in the last election. Christian Democratic chiefPierferdinando Casini said the next parliament may have onlyfive parties.
Political analyst Roberto D'Alimonte said this would turnItaly into a "normal" European country, "with just two mainparties accounting for over 70 percent of the vote".
Many Italians went to the polls to elect their 62ndgovernment since World War Two gloomy about chronic politicalinstability and an economy that has long lagged behind its mainpartners in the EU.
JP Morgan economist Silvia Pepino described Italy'seconomic problems as "very long-standing and deep-rooted andit's difficult to see any progress in the near term whateverthe outcome of the election."
Economic growth is expected by the International MonetaryFund to slow to 0.3 percent this year and Italy's debt is thethird highest in the world.
Berlusconi dominates Italian media through his businessempire, Mediaset, Italy's largest private broadcaster, and israted the country's third richest man by Forbes magazine.
(Additional reporting by Iain Rogers, Phil Stewart, DeepaBabington and Marie Louise Gumuchian in Milan; Editing byTimothy Heritage)
For more coverage of Italy's election, check out:http://blogs.reuters.com/italia/
