By Barry Moody
ROME (Reuters) - As Italy struggles to escape the euro zone debt crisis and Prime Minister Silvio Berlusconi slides into decline, an octogenarian former communist has taken center stage in warding off the danger.
President Giorgio Napolitano holds a largely ceremonial office but he has been remarkably prominent in dragging politicians into the defense of the euro zone's third largest economy against speculators' attacks.
The 86-year-old's efforts highlight the vacuum in the government where Berlusconi helped precipitate the market attack by criticizing respected Economy Minister Giulio Tremonti, then failed to react to a selloff of Italian assets that sent government bond yields to record highs.
Napolitano's activism reached its peak last week when he cajoled government parties and the opposition into abandoning their usual infighting to approve an austerity budget with unprecedented speed.
"Napolitano stepped in because there was no one else. He is exceeding his customary powers, but there is nothing in the constitution to say he cannot do this," said James Walston, political science professor at the American University in Rome.
The budget was intended to convince markets of Italy's determination to repair its public finances after its huge debt and stagnant growth had provoked fears that the euro zone's third largest economy could be the next victim of contagion from the Greek debt crisis.
The swift approval of the budget in a few days by both houses of parliament and the calming of markets consolidated Napolitano's status as Italy's most popular politician.
Berlusconi, who has dominated politics for nearly two decades, now has his lowest popularity ratings, of under 30 percent. Napolitano, a constant thorn in the prime minister's side, polls around 80 percent.
"What Italy has had for 17 years is someone who desperately tried to concentrate power in the prime minister. The president is a very important element in the democratic process because he can slow down that concentration and he has done it," Walston said.
Political sources told Reuters that Napolitano, going way beyond his customary role, had set up an unofficial committee including senior politicians and treasury officials, Berlusconi's top adviser Gianni Letta, central bank governor Mario Draghi and the leaders of the opposition, after publicly calling for "national cohesion".
"This was a real sub-government which supported the country against the speculative attack," one source said.
Tremonti rushed back to Italy from a European ministerial meeting in Brussels following Napolitano's call. Pundits say it appears the president discreetly gave Tremonti backing after Berlusconi attacked him for not being a team player.
After his initiative successfully pushed through the budget on Friday, Napolitano urged government and opposition to take concerted action to break the grip of high debt and low growth which he said was "strangling" Italy.
Throughout this process, Berlusconi remained largely out of sight, in contrast to his usual frenetic round of public and media appearances, amplifying the impression of a once-dominant politician in decline.
"The president is supposed to be largely symbolic but he also fills in spaces when spaces are made which is what is happening now," Walston said.
BERLUSCONI UNDER PRESSURE
Various reasons have been given for Berlusconi's withdrawal. One deputy said he had hit his head in the bath.
But the prime minister is under huge pressure on several fronts. He is facing four separate trials, three for corruption and one over a sex scandal, and his Fininvest holding company was recently ordered to pay almost $800 million to his chief business rival over a takeover bid tainted by graft.
He has also suffered two major political setbacks -- in local elections in May and four referendums in June -- leading to a wide belief that he has finally lost his political touch.
Berlusconi says he will not stand in the next election, due in 2013 but widely expected next year, and his center-right coalition partners, the Northern League, are increasingly concerned they are losing support because of their association with him.
"He is somewhat punch-drunk," Walston said.
All this could have been disastrous with Italy under financial attack without the intervention of Napolitano.
The president, a senior official in Italy's now defunct Communist Party for decades, has operated with his own team of political advisers to act as a brake on Berlusconi without appearing to exceed his powers -- to the irritation of the prime minister.
Leveraging wide public respect, he has repeatedly influenced events. For example, he openly criticized Berlusconi over the failure to deal with a chronic garbage crisis in the southern city of Naples.
He was influential in forcing Berlusconi to drop a provision in the budget bill which would have saved him from paying the fine in the Fininvest case and has pushed Italy to remain in the NATO force fighting Libya's Muammar Gaddafi despite the prime minister's reluctance.
The president, slim and sprightly despite his age, presents a sharp contrast of quiet dignity to the flamboyant Berlusconi, notorious not only for his association with young women but also for politically incorrect statements and diplomatic gaffes.
(Additional reporting by Paolo Biondi; editing by Robert Woodward)