By Paolo Biondi and Steve Scherer
ROME (Reuters) - Young centre-left leader Matteo Renzi was set to be nominated as Italy's youngest prime minister this weekend after a party coup forced Enrico Letta to resign as premier of the euro zone state struggling to pull out of recession.
Letta bowed out on Friday after his Democratic Party (PD) forced him to step aside and make way for Renzi, 39, who is promising bold economic reforms and a government than can survive until 2018.
President Giorgio Napolitano was expected to complete a round of consultations with parties in the evening and was likely soon afterwards to ask Renzi, the PD secretary and current mayor of Florence, to form a government, party sources said.
Renzi, whose PD is the largest party in parliament, would become the youngest leader in Italy's 163-year history as a united country, younger even - by two months - than Fascist dictator Benito Mussolini was when he took over in 1922.
But before he can stake his claim on history and attempt to install Italy's 65th government since World War Two, he must overcome institutional rituals and much political wheeling-and-dealing, a process likely to take several days.
After receiving a mandate from the president, he will have to strike an accord with the small New Centre Right (NCD) party, whose support the PD needs to command a majority in the parliament of the euro zone's third-largest economy.
The party, which split from scandal-plagued tycoon and ex-premier Silvio Berlusconi last year, said it was ready to work with the centre-left on forming a new government after meeting Napolitano.
But it made it clear it would demand guarantees in areas from tax and jobs to family policy, meaning a new government may not be in place until next week.
"We have very clear and concrete ideas on what the policy platform must be. If the ambition of the new government is great, then we cannot do things in a rush," said NCD leader Angelino Alfano, who saw no accord in "less than 48 hours".
The anti-establishment 5-Star Movement and the pro-devolution Northern League, both opposition groups, have abandoned the talks, denouncing them as an empty ritual whose outcome is already written.
But Berlusconi, the centre-right leader booted out of parliament last year after a conviction for tax fraud, was expected to accompany leaders of his Forza Italia party to meet the head of state in the afternoon.
After striking a deal with parliamentary allies, Renzi must name the members of his cabinet, swear them in and then seek confidence votes in both houses of parliament.
He would become the third prime minister in a row nominated by Napolitano without having won an election. Letta was chosen to helm a right-left government after last year's deadlocked election, and Mario Monti took over for Berlusconi during a burgeoning euro zone debt crisis in 2011.
"If they think that this is democracy, we don't agree," said Vito Crimi, a leading member of the 5-Star Movement in the Senate.
MARKETS SEEM UNCONCERNED
Financial markets have seemed indifferent to Italy's latest political ruction and investor confidence in the country's ability pay off its debt is much improved from 2011.
On Friday, Moody's Investors Service lifted the country's sovereign rating outlook to stable from negative, after having slashed it by six notches to Baa2 from Aa2 during the debt crisis.
But that will not make the challenges facing Italy's next government any less significant. Gross domestic product has shrivelled by about 7 percent in the last five years and industrial output has fallen by 25 percent.
Italy's economy grew by a measly 0.1 percent in the fourth quarter of last year, data showed on Friday. It entered its worst post-war recession in mid-2011.
Hundreds of thousands of companies have gone out of business and joblessness has reached high levels not seen since the 1970s. Italy's 2 trillion euros of public debt are equivalent to more than 130 percent of total economic output.
Until two weeks ago, Renzi repeatedly said that he had no ambition to snatch power without first winning an election. Polls say most Italians want new prime ministers to emerge from elections, not from party politics inside parliament.
Mounting pressure from unions and Italy's business lobby, which criticized the Letta government for not doing enough to help the country's struggling corporate landscape, prompted Renzi to change his mind, sources close to him have said.
A similar centre-left putsch in 1998 paved the way for a landslide centre-right election victory by Berlusconi less than three years later.
"If the new prime minister wants to govern and change the country, he'll have to do it without fear of losing the next elections," former premier Monti said in an interview with Il Foglio newspaper on Saturday.
Italian prime ministers are appointed by the president and confirmed by parliament, so they can be switched without an election taking place. The succession of prime ministers who have taken office without a mandate from the voters has drawn criticism from opposition parties.
(Additional reporting by Hannah Rantala; Writing by Steve Scherer; Editing by Tom Heneghan)
