ROME (Reuters) - Italy’s ruling Democratic Party (PD), already reeling from a bruising election defeat, is now grappling with another challenge: deep divisions over whether to go into opposition or act as king-maker for one of its adversaries.

FILE PHOTO: Democratic Party (PD) leader Matteo Renzi leaves at the end of a news conference, the day after Italy's parliamentary election, in Rome, Italy March 5, 2018. REUTERS/Remo Casilli/File Photo

The hung parliament produced by the national elections earlier this month means the PD could hold the key to a swift resolution by allowing either the anti-establishment 5-Star Movement or a centre-right bloc to form a government.

But conversations with more than half a dozen parliamentarians in the centre-left PD, including some members of the outgoing government, show the party is split into various factions over which direction to take.

The weakening of the PD, which for over two decades has been the main counterweight to the billionaire media tycoon Silvio Berlusconi, is viewed with concern in many European capitals because it could undermine the stability of the euro zone.

The 5-Star Movement and the far-right League, which emerged as the largest party in the conservative coalition, have in the past called for Italy to leave the single currency. The popularity of both parties is partly based on their hostility to EU rules on public finances, trade and immigration.

The 81-year-old Berlusconi fared less well than expected in the election but remains a central player and his party could still have an important role in government.

Some PD insiders say they support former party leader Matteo Renzi, who has called for tough opposition, saying the PD had nothing in common with “extremist” parties like the League and 5-Star.

But a refusal by the PD to participate in government could result in there being no coalition deal, triggering a rapid return to the ballot box at a time when opinion polls suggest the party could suffer even steeper electoral losses.

Other PD politicians say they want to find common ground with 5-Star, by far the biggest party following the election, to keep from power the far-right parties in the Conservative bloc.

That approach has received public support from some influential leftist figures inside and outside the party, such as former PD leader Walter Veltroni.

But by supporting a government led by another party, the PD would risk not getting the credit for popular policies while facing blame if things go wrong.

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The party’s dilemma mirrors that of Germany’s Social Democrats (SPD), which after lengthy internal debate following a similarly humiliating poll defeat, decided this month to join the government led by Angela Merkel’s Christian Democrats (CDU).

Some PD members express hope the political impasse eventually yields a role for the PD in a broad, multi-party coalition, which would allow them to remain in power on a more equal footing than a tie-up with just 5-Star or the centre-right.

“Whatever path we take risks having negative consequences,” said one PD member of the government, who added that he thought the party would eventually do a policy deal with 5-Star similar to the SPD-CDU arrangement in Germany.

The PD politicians that spoke to Reuters asked not to be named, a sign of the mutual mistrust that now reigns in the party’s ranks.

“TOTAL DISARRAY”

Adding to the PD’s predicament is what political analysts say is a leadership vacuum. Following Renzi’s resignation after the election, the party is currently headed by the low-profile Maurizio Martina, who was Renzi’s second-in-command. However, the 39-year-old former agriculture minister shows little sign of being able to unite its disoriented troops.

“The PD is in total disarray, it doesn’t have a leader or a plan or a strategy,” said Giovanni Orsina, politics professor at Rome’s LUISS University.

A spokeswoman for Martina didn’t immediately respond to a request for comment.

Formal consultations on forming a government are expected to start in April, when party delegations will meet with 76-year-old President Sergio Mattarella, who will try to broker a deal.

Talks could go on for weeks or even months, which would give the PD plenty of time to lick its wounds and regroup.

Some analysts believe Mattarella, a former PD member who has urged all groups to show “a sense of responsibility,” will lean on his old party to participate in helping to form a government.

“The day after the election the PD was adamant it would go into opposition, but they are shifting that position by a millimetre every day and Mattarella hasn’t even started persuading them yet,” said Marco Travaglio, the editor of daily Il Fatto Quotidiano and a prominent political commentator.

The PD took just 18.7 percent of the vote at the March 4 election, 14 points behind 5-Star and even further behind the conservative coalition in which the League got 17.4 percent.

The defeat followed a string of PD setbacks in local votes since it won a record 41 percent at European elections in 2014 under Renzi, then its seemingly invincible new leader. On that occasion 5-Star won 21 percent and the League got 6 percent.

BITTER RESIGNATION

In a bitter resignation speech Renzi hit out at the League and 5-Star for their attacks during the election campaign and left no doubt over which direction he wanted the PD to take.

“If we are mafiosi, if we are corrupt and unworthy of running as candidates, if our hands are covered in blood, you know what? Form a government without us,” he said.

Piero Ignazi, a politics professor at Bologna University, said the centre-left would be “crazy” to play second fiddle in any government because junior partners often suffer subsequent electoral losses. He cited Germany’s SPD, who governed with the CDU between 2013 and 2017, and Britain’s Liberal Democrats, who ruled with the Conservative Party from 2010-2015, as evidence.

However, LUISS professor Orsina said early elections were a risk the PD couldn’t afford, and argued that the party would not necessarily be penalised by cooperation with the 5-Star.

“The 5-Star Movement is very inexperienced and if the PD got some authoritative figures in the cabinet it could take an increasingly influential role and improve its image,” he said.

Whatever the PD does, it risks further internal fractures like the one it suffered before the election when a group of leftists jumped ship complaining Renzi had moved the party to the right, said Orsina.

“I think in the end they will decide to join a government with 5-Star,” he said. “But the problem is whether they will stay united, and I see a big risk of another split.”