By Barry Moody
ROME (Reuters) - The threat of an Italian government crisis following former prime minister Silvio Berlusconi's tax fraud conviction receded on Monday, but the situation remains volatile and could erupt again after the summer break.
The supreme court's decision on Thursday to confirm a four-year jail sentence for Berlusconi, commuted to one year, sparked severe tensions between his center-right party and the center left of Prime Minister Enrico Letta, partners in a shaky government.
This led to fears over the weekend that the three-month-old government would collapse at a time when Italy desperately needs action to recover from its worst post-war recession.
Such a crisis in the euro zone's third-largest economy would send renewed tremors through the bloc.
But after a heated debate between hawks and doves in Berlusconi's People of Freedom (PDL) party, the media mogul calmed the waters at a rally of supporters on Sunday evening, where he said that the government should continue for the sake of the country.
Letta on Monday appealed to the parties to avoid a damaging political crisis.
"We are beginning to see signs of recovery, but this needs stability, and that requires responsible behavior from everyone," he told reporters in the northern city of Bolzano.
An early election under the present electoral law would produce "instability and fragmentation," he said, adding that electoral reform would be a top priority of his government after the summer break.
The PDL's floor leaders in the Chamber of Deputies and Senate, Renato Brunetta and Renato Schifani, on Monday met President Giorgio Napolitano to discuss Berlusconi's fate.
Sources in Napolitano's palace said they had made requests of the head of state but in a more measured tone than some PDL hawks who have demanded a pardon for the 76-year-old billionaire. No details were available on what they suggested.
Experts and presidential aides say Napolitano cannot pardon Berlusconi for several legal and institutional reasons, but the PDL wants him to somehow prevent the removal of a leader for whom 10 million Italians voted in February.
The PDL has no viable alternative leaders although the court decision has led to speculation that Berlusconi may be replaced by his daughter Marina, 46, who leads his business empire.
At his rally on Sunday, a tearful Berlusconi, watched with concern by his 28-year-old girlfriend Francesca Pascale, said the last few days had been the most painful of his life. But he said he refused to give up and would fight on.
Letta's Democratic Party (PD) says the law must take its course and could rebel if extraordinary measures are used to get Berlusconi off the hook.
The respite for Letta's embattled government may only be temporary, encouraged for the moment by the slow justice system, parliament's summer recess and the sacrosanct exodus of Italians to the beaches and mountains in August.
Berlusconi has until mid-October to decide whether he wants to serve his one-year sentence doing community service or under house arrest. Because of his age he is not expected to go to jail. However, police have already confiscated his passport.
His fellow senators could take until the end of the year to vote on whether to evict him from parliament.
Letta cautiously welcomed Berlusconi's support for the government, but added: "We will be able to verify concrete actions over the next few days."
Former center-left leader Pier Luigi Bersani, who lost his job after Berlusconi almost beat him in February's vote, said he saw "a very complicated course from September onwards" if the PDL could not separate the fate of its leader from its responsibilities.
Despite the potential for a government collapse, analysts point out that an election soon could be a disaster, not just for the country but for the two major parties themselves.
If they are seen to have plunged Italy into new uncertainty for purely party political reasons, they could be severely punished by an angry electorate and lose more ground to the populist 5-Star Movement of comedian Beppe Grillo, which took an unprecedented quarter of the vote in February.
(Additional reporting by Roberto Landucci and Gavin Jones; Editing By Catherine Hornby, Raissa Kasolowsky and Mike Collett-White)
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