By Steve Scherer and Giselda Vagnoni
ROME (Reuters) - Italian Prime Minister Mario Monti faced increasing pressure on Thursday to stand as a candidate in next year's election after Silvio Berlusconi's surprise offer to drop his bid for a fifth term as premier.
At a meeting of the European People's Party in Brussels, an umbrella group of centre-right parties, Berlusconi repeated the offer to stand aside if Monti agreed to run against the centre-left, who are tipped to win the election.
Monti's attendance at the meeting alongside Berlusconi and German Chancellor Angela Merkel came as a surprise to many as he was not on the guest list or agenda.
Monti was brought in a year ago to head a technocrat government to save Italy from financial crisis, but opinion polls suggest he would have little chance of winning an election if he were to run as a candidate.
He would also face many hurdles within the center-right, which is highly fragmented and includes his most entrenched critic, the Northern League.
"There were a lot of expressions of support for a Monti candidacy," a member of the European parliament told Reuters. "But Monti didn't resolve the dilemma."
Berlusconi center-right People of Freedom (PD) party withdrew support from Mont's government in parliament last week, prompting him to resign.
On Saturday, Berlusconi declared he would lead the PD into an election expected early next year.
With memories fresh of the financial crisis which prompted the end of Berlusconi government last year, his mooted return to frontline politics alarmed Italy's European partners and rattled financial markets.
The media magnate's call for Monti to stand has aroused skepticism in Italy because it came only two days after he had blamed Italy's deep recession on austerity policies he said had been dictated to Monti by Germany and the European Central Bank.
Opinion polls suggest Berlusconi has no real chance of winning the election, and markets have calmed. In an auction of three-year bonds on Thursday the Treasury paid the lowest borrowing costs since late 2010.
Monti is widely credited with restoring Italy's international credibility after the scandal-plagued Berlusconi era and he has given no clear indication of his intentions.
He has said only that he would like to continue playing a role in influencing ideas.
Asked about Berlusconi's offer ahead of a European Union summit in Brussels, Monti said it was neither the time nor place to respond. He said he was committed to leading the government in the brief time remaining before the 2013 budget is approved and he resigns - probably before Christmas.
BERATING SEEN WINNING
Berlusconi latest volte-face increases the likelihood that he will pull out of the election. He has been struggling to hold his People of Freedom party (PD) together.
Opinion polls, meanwhile, show a commanding lead for the center-left Democratic Party and its leader Pier Luigi Bersani, said Roberto D'Alimonte, a politics professor at Rome's Luis university and an expert on electoral systems.
"The only certainty about the upcoming election is that Bersani is going to win hands down," D'Alimonte said.
Bersani has supported the technocrat government in parliament but has been cool on the idea of Monti running at the election, saying to do so would put at risk his position as a universally respected independent.
It could also prevent Monti from becoming president of the Republic, a position which would give him considerable influence over the government and the political scene in general.
On Thursday, Bersani repeated that he expected the former European Commissioner to continue playing some role when his term in office ends.
"The day after the elections, the first person who I would like to have a conversation with is Monti," Bersani said.
Ferrari's chairman, Luca Cordero di Montezemolo, whose recently formed centrist group has been regarded as a potential vehicle for a Monti candidacy, said on Thursday he hoped he would throw his hat into the ring.
"I'm optimistic. I think Monti is the first to realize how much there is left to do," he told RAI state television.
Berlusconi's hopes have faded of securing an alliance with the regionalist Northern League party that could have given him a strong position in the Senate.
(Additional reporting By Luke Baker in Brussels; Writing by James Mackenzie; Editing by Myra MacDonald)