By Barry Moody
ROME (Reuters) - One of the mafia's most notorious crimes has returned after 20 years to haunt Italy, dragging head of state Giorgio Napolitano into a nasty constitutional dispute in the run-up to a watershed election next year.
The dispute, connected to the murder of anti-mafia magistrate Paolo Borsellino and his five-strong police escort in Palermo in July 1992, has unleashed a messy clash involving state institutions, politicians, judges and the media.
The clash erupted when Napolitano demanded that prosecutors destroy a taped conversation between him and one of 12 people accused of negotiating with mob bosses. Critics say his action could undermine the power of judges to investigate politicians, open him to political attacks and spark a constitutional crisis.
The case has erupted at a time when the president must play a crucial role, deciding when to call elections - most likely next spring - and shepherding the debt-laden country towards a poll ending Prime Minister Mario Monti's technocrat government.
What will follow is deeply uncertain, adding to market jitters about Italy's economy. Both sides accuse the other of trying to exploit the dispute for political ends and weaken the president at a sensitive moment.
Napolitano himself issued an unusually angry statement on Thursday referring to "dark and destabilizing moves." Monti said: "We are faced by an exploitative attack".
The president is accorded unusual respect in a country where most politicians are viewed with skepticism or contempt, and Napolitano was hailed as a hero when he ended the scandal-plagued premiership of Silvio Berlusconi last November and brought in Monti to save Italy from a Greek-style crisis.
But a dispute over an investigation into alleged negotiations to stop mafia attacks on government and judicial officials before and after Borsellino's murder has exposed him to unusually outspoken attacks.
Napolitano became vulnerable because the prosecutors taped calls made to him by former Interior Minister Nicola Mancino, who is accused of perjury for denying he knew about the negotiations. Mancino was allegedly asking for help in dealing with the case during the calls starting last November.
Napolitano says it is illegal to tap the president, even indirectly, and when the prosecutors denied this and refused to destroy the recording he appealed to the constitutional court. He says he has nothing to hide but is protecting his office as an independent figure above the political fray.
The court has promised to expedite a verdict by the end of the year, only a few months before the expected election date, but Napolitano's action has already created a political storm with unpredictable results.
Borsellino's brother Salvatore has called on Napolitano to step down. He told Reuters the president's action was "an obstacle on the road to truth and justice over the massacre and the negotiations, which led to the murder of my brother."
He called on Napolitano to make the call public and put an end to "maneuvers possibly aimed at destabilizing the president and our country's institutions".
Most mainstream papers and major parties have defended Napolitano but he has been attacked by rising populist leader Beppe Grillo, the Fatto Quotidiano daily and former magistrate Antonio di Pietro, who leads the small Italy of Values party.
Influential former senior judge and member of parliament Luciano Violante alleges they represent "judicial populism" aimed at damaging both Napolitano and the Monti government.
On Thursday, Panorama magazine which is owned by Berlusconi's family, caused new uproar when it alleged the phone taps included Napolitano rudely disparaging the former premier at the same time he was replacing him with Monti last year.
Berlusconi has for years denounced left-wing magistrates who have brought repeated cases against him, most frequently for fraud and corruption, but recently over a lurid sex scandal.
His PDL party seized on the affair to reinforce their demand for a law restricting taps - often used in the past against the media magnate.
Daniela Santanche, a fiery PDL member of parliament close to Berlusconi, said on Friday that he should be reinstated if the taps showed Napolitano was not impartial.
Borsellino's murder in a giant car bomb outside his mother's Palermo home came at a low point in the war against the mob.
He died only two months after his friend and top anti-mafia prosecutor Giovanni Falcone died in a half-ton bomb explosion that also killed his wife and three police escorts.
The case has particular resonance because the two men are Italy's biggest modern heroes with streets named after them everywhere.
A picture of them smiling together was ubiquitous on street corners during this year's anniversary of the killings, when politicians of every stripe attended commemoration ceremonies, calling for the truth to be unearthed about the murders.
Palermo prosecutors last month requested trial for six mob-connected figures and six former state or police officials, including Mancino and an ex-secret service chief, on charges connected to alleged negotiations between 1992 and 1994.
The mafia is believed to have offered to end a string of attacks on officials, judges and politicians, including Falcone, in exchange for lighter sentences and softer jail conditions for convicted gangsters.
Salvatore Borsellino told Reuters: "Paolo's murder was accelerated because he opposed the negotiations. He would have been killed in any case. It had already been decreed. But they would have preferred not to do it so soon after the death of Falcone because this inevitably caused a state reaction."
The war against the mafia was indeed boosted and "boss of bosses" Toto "the beast" Riina was captured in 1993.
Borsellino said magistrates must clarify whether the secret service was involved directly in his brother's murder. That has long been rumored because an unidentified non-mob figure was present when the car bomb was prepared and difficult-to-acquire Semtex explosive was used in the device, according to informers.
Hence the stakes were high in the case even before Napolitano was dragged into the constitutional dispute.
"If all or even some of the accused are convicted it will be a bombshell for Italian institutions," said James Walston, politics professor at the American University in Rome.
"Even without convictions, and with what we already know, the effects on public institutions are devastating," he said.
(Reporting by Barry Moody; Editing by Jon Boyle)