Left in wave of euphoria as a new era dawns

Italian election: Red flag flies again after 50 years as Olive Tree coalition sees off Berlusconi and pledges a new stability

"We've waited 50 years for this moment," clamoured Massimo D'Alema, leader of Italy's main left-wing party, the PDS. The time was 1am yesterday and an ecstatic centre-left was celebrating its landmark general election victory in the heart of Rome. The crowd roared with approval.

Mr D'Alema's party has travelled a long way towards the political centre since its birth out of the ashes of the old Communist Party six years ago, but under the circumstances, he could not resist a throwback to the old tradition. "Finally we have brought this symbol into government," he said, standing on the balcony of the party's historic headquarters on the Via delle Botteghe Oscure and waving a hammer-and-sickle flag.

A crowd began chanting "Enrico, Enrico" in memory of Enrico Berlinguer, the visionary Communist leader of the 1970s who spent his life trying unsuccessfully to forge a "historic compromise" to bring his party to power alongside the Christian Democrats.

What Mr Berlinguer failed to achieve during the Cold war, however, Mr D'Alema has managed in its messy aftermath. The victorious Olive Tree coalition, linking the PDS with a myriad of centrist, Christian Democrat and environmentalist groups, is really the historic compromise made flesh.

Mr D'Alema has been its architect, but a moderate economics professor, Romano Prodi, has the task of forming the next government. The Olive Tree won an absolute majority in the Senate, the upper house of parliament, and pulled significantly ahead of Silvio Berlusconi's Freedom Alliance in the Chamber of Deputies.

In the lower house, however, Mr Prodi will have to rely on at least the tacit support of one of two protest groups - the far-left Rifondazione Comunista, with which the Olive Tree had an electoral pact, and the volatile Northern League, which outstripped all expectations by garnering some 11 per cent of the national vote.

Despite the fragility of the result, a wave of euphoria swept over the country indicating the arrival of something truly new in Italian politics. The financial markets reacted by marking up the value of the much-battered lira, and the outgoing prime minister, Lamberto Dini, an ally of Mr Prodi's, was confident interest rates would soon fall.

What was immediately noticeable was a sharp change in tone, from the aggressive, almost paranoid rantings of Mr Berlusconi and his allies in the neo-fascist National Alliance, to the conciliatory tones of the Olive Tree. Apart from his one nostalgic reference to the past, Mr D'Alema was quick to point out that aggression and the desire for revenge were not part of the new political culture.

Faced with cries of "Let's put Berlusconi in jail!", Mr D'Alema retorted: "No - that's the way the right behaves, not us." Mr Prodi, meanwhile, pledged cross-party talks on constitutional reform to end Italy's chronic instability.

The Freedom Alliance, by contrast, found it extraordinarily difficult to concede defeat. Mr Berlusconi, who has scarcely been off the television screens for two years, did not react until last night, when he claimed unconvincingly his side had in fact won more votes. Earlier he was reported to have said "see you all abroad", perhaps less of a joke than it sounds given his deepening problems with anti-corruption magistrates.

The biggest disappointment on the right was for Gianfranco Fini's reformed neo-fascists, who had hoped to reach 20 per cent of the vote, putting them level or even ahead of Mr Berlusconi's Forza Italia. But they wound up with just 15 per cent, five points behind Forza.

The result was particularly awkward for Mr Fini, who singlehandedly provoked the election by pulling out of all-party talks on constitutional reform in February. His push for a presidential style of government, which had made considerable headway in the negotiations, is now likely to be replaced with a less centralised, less radical kind of reform.

The first job of the new parliament, which will not convene until 9 May, will be to elect speakers in the two chambers. Only then can formal talks on forming a government take place, although by then it should be reasonably clear what shape the new administration will take.

Early indications suggest Mr Prodi as prime minister, his number two Walter Veltroni as deputy, Mr Dini as either treasury or foreign minister, and the anti-Mafia magistrate Luciano Violante as justice minister. One key job will be the minister of posts and telecommunications, responsible for broadcasting. Mr Berlusconi could well lose one or more of his three television channels.

Leading article, page 16

Comment, page 17

Hamish McRae, page 22

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