Italy's League leader opens door to government deal with 5-Star

By Gavin Jones and Claudia Cristoferi ROME (Reuters) - The leader of Italy's eurosceptic League said on Wednesday a government deal with the anti-system 5-Star Movement was possible after an inconclusive election, raising the prospect of two radical groups running the country. The March 4 vote ended in gridlock, with 5-Star and the League emerging as the top two parties in parliament, but no bloc or group securing a majority to govern alone. Italy's head of state is due to start consultations next month to try to end the stalemate in the euro zone's third largest economy, with the various parties positioning themselves for potentially fraught and lengthy negotiations. "Barring the PD, everything is possible," League leader Matteo Salvini told reporters, referring to the centre-left Democratic Party (PD), which was defeated after a difficult five years in office spent trying to revive the sluggish economy. The PD itself has pledged to move to opposition ranks. 5-Star, born as a protest movement in 2009, long resisted any suggestion of forming alliances, but its leader Luigi Di Maio said on Wednesday that it now wants to talk to other parties to fix a common programme. "Before we talk about who, let's talk about what, let's pursue a programme centred on the people outside the corridors of power," he said at a business association event in Milan. Salvini's overture to the 5-Star is anathema to his coalition partner, four-time prime minister Silvio Berlusconi, whose Forza Italia (Go Italy!) party trailed the League in the election and now plays second fiddle in their conservative bloc. EURO HOSTILITY Berlusconi, who has branded 5-Star a "dangerous sect", said on Wednesday he wanted a minority centre-right government "with support from the PD on individual measures", Forza Italia Senator Luigi Vitale told reporters after a party meeting. Berlusconi acknowledged that Salvini and junior coalition ally the Brothers of Italy disagreed, but said: "We will convince (them)," according to Vitale. Salvini has adopted a much more hostile line towards the European Union than Berlusconi, a point that was underlined on Wednesday when he said the euro currency was not irreversible, prompting investors to dump Italian government bonds. Ahead of the vote, all parties promised to cut taxes and raise spending, apparently at odds with pledges to also cut a public debt that is second only to Greece's in the euro zone as a proportion of GDP. Among the most eye-catching proposals were the League's 15 percent flat tax rate and 5-Star's scheme to guarantee a minimum income of 780 euros ($964.47) a month. It is not clear how either measure would be funded, and their potential impacts on public finances are comparable, Bank of Italy Director General Salvatore Rossi said on Wednesday. "They are two very different, very expensive measures," Rossi told La7 TV. Salvini has promised not to abandon his partners, after Forza Italia's relegation to second place in the coalition prompted speculation the League could split off and join 5-Star. But a further potential obstacle to such a deal could come from within 5-Star, which has been trying to transmit a moderate message and reassure Europe and financial markets that it is fit to govern. In an apparent reference to the League's radical allies in the European Parliament, including France's National Front and the Dutch Freedom Party, Di Maio said on Tuesday that 5-Star "wants nothing to do with extremist parties in Europe". The new parliament sits for the first time on March 23. One of its first duties will be to elect presidents for the two chambers, a process which will give a glimpse of party dynamics. On Wednesday, Di Maio said he was confident Italy's government impasse would last less than the six months that passed before German politicians struck a deal this month. "It won't all be roses, but this legislature can turn a page for the country, with a good budget law, strong budget planning, and dialogue between the groups," he said. ($1 = 0.8087 euros) (Additional reporting by Alberto Sisto; Writing by Isla Binnie; Editing by Mark Heinrich and Andrew Heavens)