By Silvia Aloisi

COMO, Italy (Reuters) - Tarnished by a widening corruption scandal, Italy's Northern League is fighting to contain damage at local elections next week, but even its usually feisty founder Umberto Bossi is not holding out much hope.

"With all the problems we've had, these polls will be difficult for us," a subdued and tired-looking Bossi said at a sparsely attended rally near Como, a lakeside city in the rich Lombardy region that is one of the party's strongholds.

The first round of local elections on May 6 to 7, in which around 800 cities and towns are voting, are the first polls held since technocrat Mario Monti took office last November with the objective of pulling debt-laden Italy back from the brink of financial disaster through painful austerity measures.

The elections are an important gauge of voter discontent at a time when Monti government's approval ratings are falling, but are also a crucial test for the country's discredited parties a year ahead of national elections.

The League, a fierce critic of Monti and the largest party opposing his unelected government in parliament, might normally expect to benefit from a rising mood of public anger at the bitter austerity medicine the cabinet has prescribed.

Instead, the party, which rose to prominence after the "Clean Hands" bribery scandals of the 1990s, is looking vulnerable after a corruption affair that has led to Bossi being driven from power in a welter of graft allegations.

"I'm nauseated, they're just thieves like all the others," said Como pensioner Giorgio Balzaretti, a long-time League supporter who said he now votes for the Italy of Values, a leftist party led by anti-graft magistrate Antonio Di Pietro.

In Como, a city of 85,000 people and a textile hub whose famous silk industry is feeling the heat from Chinese competition, a record 16 candidates are vying for the job of mayor.

Opinion polls show the centre left has a serious chance of winning here for the first time since 1994, snatching the local government from the League and its former long-time ally, Silvio Berlusconi's PDL party.

CORRUPTION

For the anti-European Union, pro-devolution League, a party which built its image on attacking the corruption of the old party system and which has ditched the alliance with the PDL to run alone at the polls, it was not meant to be this way.

Until the funding scandal broke a few weeks ago it had hoped to capitalize on widespread anger at Monti's "blood-and-tears" reforms, echoing the success of other anti-establishment, populist movements in capturing protest votes across Europe.

That in turn would have cemented its role as a vital king-maker on the right for next year's national elections.

Instead it has seen its leaders embroiled in scandal and its position as the main alternative to the traditional parties of the left and right usurped by the 5-Star Movement led by the comedian Beppe Grillo.

Bossi has been expelled from leadership of the party but has clung on as chairman, denying any wrongdoing and blaming a plot which he says was orchestrated to eliminate the main political force opposing the Monti government.

Italian newspapers have piled on details of under-the-counter cash payments to members of his family, underlining the irony of a party which rose to power on an anti-bribery ticket apparently now wallowing in corruption.

Former party treasurer Francesco Belsito is being investigated over a web of fraud allegations featuring offshore companies in Tanzania and Cyprus, gold bars and diamonds as well as accusations taxpayers' money was used to renovate Bossi's villa and pay for his childrens' holiday.

Another ex-party member has described how he acted as a "cash machine" for Bossi's son Renzo, for whom he was a driver.

The League scandal is the most spectacular of a wave of corruption affairs that has hit all sides of the spectrum and pushed the credibility of the system to new lows, with confidence in parties sinking to two percent in one recent poll.

Pollsters expect a surge in abstention rates and a further splintering of Italy's already-fragmented political system, which could help Monti push through further unpopular measures but may make it harder for whoever succeeds him to govern.

At the national level, most surveys see the League - which once wanted to cut Italy's prosperous north off from what it sees as the profligate, corrupt south - falling below 7 percent of the vote, against over 12 percent in 2010 regional polls.

However, further ahead, few are willing to dismiss a party which has secured a deep hold on its core constituency of small business voters, who fear being dragged down by what they see as a wasteful and corrupt central government in Rome.

Bossi says all is not lost and, seeking to regain the initiative in the runup to the polls, the League has launched a high-profile campaign against an unpopular property tax that has been reintroduced by Monti's government.

"We might be taking a hit now but further down the road, we'll be fine," he said. "Our political project is too powerful, we are the only strong voice in the north."

(Editing by David Holmes)




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