By Roberto Landucci
ROME (Reuters) - Italian Prime Minister Enrico Letta met center-left leader Matteo Renzi on Wednesday for a showdown that could decide whether the premier cedes his place as head of the fragile coalition government less than a year after taking office.
The two met in Letta's office in Palazzo Chigi a day before a meeting of the 140-strong leadership group of the center-left Democratic Party (PD) that is due to decide whether the largest party in the coalition will continue to support the prime minister.
After days of gathering tension and repeated criticism by Renzi of the Letta government's failure to pass significant economic reforms, expectations have risen that the prime minister will stand aside.
Letta, a low-profile moderate appointed in April to lead a government patched together after last year's deadlocked election, has kept his unwieldy coalition together but has struggled to pull Italy out of its worst postwar recession.
He promised to unveil a package of measures on Wednesday but it was unclear of he would go ahead with the announcement.
Renzi's victory in a PD leadership primary in December has shaken up politics in Italy and complicated the position of Letta, who is from the same party. A change in premier would add an unpredictable new element to an already volatile situation.
"The political situation is really complicated. You'd need Doctor House to understand what's going on in the PD," Health Minister Beatrice Lorenzin told RAI state radio on Wednesday, referring to the brilliant diagnostician in the television drama of the same name.
The political ructions in Italy, the euro zone's third largest economy, have so far left financial markets undisturbed with the risk premium on Italian 10 year bonds over safer German Bunds below 200 basis points, comparable with levels seen before the euro zone debt crisis exploded in 2011.
But the continual uncertainty has held back reforms needed to pull Italy from a slump that has seen its economy shrink by more than 9 percent since 2007 and sent unemployment to levels not seen since the 1970s.
Renzi, an ambitious and fast-talking 39-year-old whose main experience of government has been as mayor of Florence, has said repeatedly that if the coalition cannot get things done it would be better to hold new elections.
However he is as aware as anyone that until the electoral law that produced last year's stalemate is changed, any new vote would almost certainly produce another impasse.
Opinion polls suggest that Italian voters do not want to see a change of premier without elections, with a survey in Wednesday's La Stampa suggesting that no more than 14 percent wanted to see Renzi taking over before a new vote.
Appealing to his cultivated image of dynamic modernizer impatient with the rituals of old-style politics, Renzi arrived for his meeting with Letta at the wheel of a blue Smart car. But the speculation of a handover is reminiscent of the short-lived revolving door governments of the past.
Whether the small New Centre Right party that supports Letta would be willing to remain in government with the much higher profile Renzi remains to be seen, and Italian newspapers speculated that he may be aiming for a new coalition with the small Left Ecology Freedom party.
"We are evaluating the options," Regional Affairs Minister Graziano Del Rio, a close ally of Renzi told Canale 5 television. "It will depend on the wishes of the political forces that support this government."
A drive by Renzi to reform the electoral law, a measure touted by all sides as a necessary step to creating stable government, has already encountered problems in parliament and disagreement over the scores of amendments that have been filed has pushed a scheduled debate into next week.
Silvio Berlusconi's Forza Italia party, now in opposition, openly questioned whether the electoral reform proposals agreed between Renzi and Berlusconi would continue if the party secretary also assumed the role of prime minister.
"With a Renzi government, where will the accord on institutional and electoral law reform end up?" the party's parliamentary floor leader Renato Brunetta told Radio Capital.
(Additional reporting by Naomi O'Leary; Writing By James Mackenzie; editing by Ralph Boulton)