By Gavin Jones
ROME (Reuters) - Prime Minister Mario Monti no longer has the backing in parliament to adopt more reforms and Italy should consider holding an early election before the year-end, the economic spokesman for a major ruling party told Reuters on Sunday.
"In this political context and with this parliament, Monti does not have the strength to carry out more reforms," said Stefano Fassina, economic spokesman of the centre-left Democratic Party (PD), one of the two main parties Monti depends on for his majority.
"We should verify quickly if there is any chance of reforming the electoral law and if that doesn't work we should consider the possibility of bringing forward the budget law for 2013 and voting in the autumn," he said in an interview.
Italy's electoral law repeatedly fails to produce stable majorities but the parties have widely divergent views on how to reform it and few analysts expect them to find common ground ahead of the next election.
Although there has been some media speculation about the possibility of an election some six months ahead of the natural end of Monti's mandate, Fassina is the first senior member of a ruling party to openly advocate such a move.
He admitted his views did not necessarily reflect those of the whole party, and he said the PD would begin thrashing out a common position on the matter at a leadership meeting on Friday.
With the other main ruling party, Silvio Berlusconi's People of Freedom (PDL), in total disarray after heavy defeats in local elections last month, Fassina's comments underscore the domestic difficulties facing Monti as the euro zone debt crisis intensifies.
On Friday, Berlusconi said Italy should leave the euro unless the European Central Bank agreed to pump more cash into the economy, only to play down his remarks the next day as a "joke".
Italy's borrowing costs have risen steadily in recent weeks as investors fret over a looming election in Greece and the state of Spain's banks.
The gap between yields on Italian 10-year bonds and safer German Bunds, a measure of how risky investors consider Italy to be, was around 4.7 percentage points on Friday, compared with a recent low of around 2.8 points in March.
AGONY
Fassina said May's mayoral elections showed the make-up of parliament no longer reflected the popular will, meaning that both parliament and Monti's government had lost legitimacy.
The PD won dozens of cities from the PDL in the vote but it lacks an obvious candidate for prime minister and even if it were the largest party in an early election it would need the support of a broad, heterogeneous coalition in order to govern.
Fassina said he did not believe markets would punish Italy so long as Monti's government were brought to an end in an orderly way, while prolonging the agony for another nine months would only make things worse.
"It would have to be very transparent and agreed with the European Union," Fassina said. "In March or April 2013, after more recession and more unemployment I think the economic and also the political situation will be considerably worse."
Italy has been in recession for the last year, business and consumer morale are at record lows and Monti's popularity has fallen as tax hikes and job losses have eroded support for his technocrat government.
Fassina acknowledged that an election in the autumn may not produce a decisive outcome, but he argued that this would also be the case next year. In the meantime "Italy's politics and institutions are being progressively weakened".
He said excessive austerity measures adopted by Monti had been counter-productive and Italy would not reach its "totally optimistic and unrealistic" public finance targets due to the shrinking economy.
Fassina said Italy should aim for a structurally balanced budget in 2015 rather than in 2013 as targeted by Monti.
With the extra fiscal leeway it would be possible to scrap a hike in value added tax scheduled for October, immediately boost public investments and "save thousands of companies and jobs".
(Reporting by Gavin Jones; Editing by Ralph Gowling)
