By James Mackenzie
ROME (Reuters) - Italian President Giorgio Napolitano began consultations with political leaders on Wednesday to try to find a way of forming a government after the deadlocked election last month left no party with a majority in parliament.
Senate speaker Pietro Grasso said after meeting Napolitano the president was determined to reach an accord, saying there was "an absolute necessity to give the country a government" but the parties were deeply divided before talks opened.
Italy's political stalemate and the prospect of months of uncertainty has created alarm across Europe just as the standoff over bank deposits in Cyprus reawakened fears that the euro zone debt crisis could flare up again.
Center-left leader Pier Luigi Bersani, who won a majority in the lower house but not in the Senate, commands the largest bloc in parliament but cannot govern unless he has support from one of the other parties.
However, there has been no sign that an accord is possible with either former Prime Minister Silvio Berlusconi's center-right alliance, the second biggest force in parliament, or the anti-establishment 5-Star Movement led by ex-comic Beppe Grillo, which holds the balance of power.
Berlusconi said only a broad cross-party alliance was capable of addressing the problems facing Italy but has been rebuffed by Bersani.
"We have declared ourselves open to this but Bersani and his supporters keep stubbornly paying court to Grillo and the 'Grillini' even though they only keep getting rebuffed," he told his own Italia 1 television.
If no agreement can be struck, Italy faces the prospect of a brief period under a caretaker government followed by a return to the polls, possibly as early as June or after the summer holiday months, in September or October.
Napolitano also meets minor parties, including Prime Minister Mario Monti's centrist group on Wednesday before the main meetings on Thursday when he sees representatives from the 5-Star Movement, Berlusconi's People of Freedom (PDL) party and Bersani's Democratic Party (PD).
Bersani, 61, received a small boost at the weekend when his candidates were elected the speakers of the two houses of parliament, despite the center left's lack of a Senate majority.
Bersani is proposing to present a limited package of reforms aimed at fighting corruption and creating jobs that he hopes can be backed by the 5-Star Movement.
Given the fractious climate, the prospects of a minority government surviving more than a short time are slim but Bersani has little alternative.
"The PD is not changing our line, we'll go to the consultations with the proposals which were voted by the party leadership immediately after the election," he told reporters on Tuesday.
Italy, the euro zone's third-largest economy, can ill afford a prolonged political crisis after the turmoil which brought down Berlusconi's last government and dragged the single currency to the brink of disaster just 16 months ago.
Its economy is deep in recession, and unemployment is at record levels especially among the young. Its 2 trillion-euro ($2.6 trillion) public debt is dangerously vulnerable to bond market volatility and any sharp rise in interest rates.
"Clearly, given the situation we have in Italy right now, in my view, it is obvious that there is a significant risk to the world economy from a return to a situation of political uncertainty," Swedish Finance Minister Anders Borg said.
However, far from prompting the parties to cooperate as they did when Monti's technocrat government took over from Berlusconi in 2011, the crisis appears to have deepened hostility.
Grillo, who has pledged not to give a vote of confidence to a government led by any other party, warned followers against falling into a "trap" after a handful of rebels voted with the center left in the election of the Senate speaker on Saturday.
Berlusconi, fighting a tax fraud conviction and facing trial for paying for sex with a minor, has demanded that the center right be allowed to name the next president when Napolitano's term ends on May 15, offering his support to a Bersani-led government in exchange.
That offer was rejected as "indecent" by the PD, prompting Berlusconi to pledge street protests if parliament appointed a center-left head of state.
A rally organized by the PDL, called "All for Silvio!" is already planned for Saturday to protest against what his supporters say is a political campaign by magistrates against the 76-year-old billionaire.
(Additional reporting by Naomi O'Leary; Editing by Angus MacSwan)
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