Italy PM Letta in showdown with party boss Renzi

ROME (Reuters) - Italian Prime Minister Enrico Letta resisted growing pressure on Wednesday to resign and let centre-left leader Matteo Renzi form a new government, as discontent grows with the slow pace of economic reforms.

The two met in Letta's office in Palazzo Chigi a day before a meeting of the 140-strong leadership group of the centre-left Democratic Party (PD) to decide whether the largest party in the coalition will continue to support the prime minister.

Days of repeated criticism by the ambitious and fast-talking Renzi, 39, of the Letta government's failure to lift the economy out of its worst slump since World War Two have raised expectations that the prime minister will stand aside.

However, after a meeting that lasted more than an hour, there was no sign of a change in the position of either, according to a source in the prime minister's office.

The softly-spoken Letta, himself a member of the PD, was appointed in April to lead a cross-party government patched together after last year's deadlocked election. He has kept the unwieldy coalition together but has struggled to change the perception that he has done little more than survive in office.

He promised to unveil a package of measures at a news conference due at 6 p.m. (1700 GMT) on Wednesday, while Renzi said on Twitter that he would make his own position clear at Thursday's leadership committee meeting.

Renzi's victory in a PD leadership primary in December has shaken up politics in Italy and complicated the position of Letta, who has nothing like his rival's voter appeal and telegenic presence.

The latest ructions in Italy, the euro zone's third-largest economy, have so far left financial markets unperturbed, with the risk premium on Italian 10-year bonds over German Bunds around 200 basis points, comparable with levels seen before its bonds were sucked into the euro zone debt crisis in 2011.

But continual uncertainty has held back any radical effort to revive an economy that has shrunk by more than 9 percent since 2007, sending unemployment to levels not seen since the 1970s.

Renzi, on the centrist wing of the PD which contains a broad swathe of Italy's left, and whose main political experience is as mayor of Florence, has said that if the coalition cannot get things done it would be better to hold new elections.

However, until the electoral law that produced last year's stalemate is changed, any new vote would almost certainly produce another impasse.

President Giorgio Napolitano, the 88-year-old head of state who would have to call a new election if Letta loses the support of his party and no new government can be formed, brushed off talk of a snap poll, saying: "Let's not talk nonsense".

IMPATIENT

In keeping with his image as a dynamic moderniser impatient with the rituals of old-style politics, Renzi arrived for his meeting with Letta at the wheel of a blue Smart car.

But the speculation of a handover is reminiscent of the short-lived revolving door governments of the past and underlined the Italian left's long tradition of infighting.

"If this is Renzi's revolutionary new idea of politics then frankly he's a great disappointment," said Mara Carfagna, parliamentary spokeswoman for Silvio Berlusconi's centre-right Forza Italia party.

Opinion polls suggest that Italian voters do not want a change of premier without elections, with a survey in Wednesday's La Stampa suggesting that no more than 14 percent wanted to see Renzi taking over before a new vote.

Whether the small New Centre Right party that supports Letta would be willing to remain in government with the much more pugnacious Renzi remains to be seen, and Italian newspapers speculated that he may be aiming for a new coalition with the small Left Ecology Freedom party.

"We are evaluating the options," Regional Affairs Minister Graziano Del Rio, a close ally of Renzi, told Canale 5 television. "It will depend on the wishes of the political forces that support this government."

A drive by Renzi to reform the electoral law, a measure touted by all sides as a necessary step to creating stable government, has already encountered problems in parliament and disagreement over the scores of amendments that have been filed has pushed a scheduled debate into next week.

To add to the uncertainty, Forza Italia, now in opposition, openly questioned whether the electoral reform proposals agreed between Renzi and Berlusconi would continue if the party secretary also assumed the role of prime minister.

(Additional reporting by Naomi O'Leary; Writing By James Mackenzie; Editing by Robin Pomeroy)