Berlusconi praises 'good' Mussolini

Silvio Berlusconi, Italy's former prime minister, has triggered outrage with comments defending fascist wartime leader Benito Mussolini at a ceremony commemorating victims of the Nazi Holocaust.

Speaking at the margins of the event in Milan on Sunday, Berlusconi said Mussolini had been wrong to follow Nazi Germany's lead in passing anti-Jewish laws but that he had in other respects been a good leader.

"It's difficult now to put yourself in the shoes of people who were making decisions at that time," said Berlusconi, who is campaigning for next month's election at the head of a coalition that includes far-right politicians whose roots go back to Italy's old fascist party.

"Obviously the government of that time, out of fear that German power might lead to complete victory, preferred to ally itself with Hitler's Germany rather than opposing it," he said.

"As part of this alliance, there were impositions, including combatting and exterminating Jews," he told reporters.

"The racial laws were the worst fault of Mussolini as a leader, who in so many other ways did well," he said, referring to laws passed by Mussolini's fascist government in 1938.

Although Mussolini is known outside Italy mostly for the alliance with Nazi Germany, his government also paid for major infrastructure projects as well as welfare for supporters.

Berlusconi's comments overshadowed Sunday's commemoration of thousands of Jews and others deported from Italy to the Nazi death camps of eastern Europe.

His remarks, apparently intended to cut the ground from under the far right, prompted an outcry from other Italian politicians. Dario Franceschini, the leader of the centre-left Democratic party (PD) in the lower house, said they were a "disgrace and an insult to history and memory".

Marco Meloni, the PD's spokesman for institutional affairs, added: "Our republic is based on the struggle against Nazi fascism, and these are intolerable remarks which are incompatible with leadership of democratic political forces."

But, as he has repeatedly done ahead of the election on 24 and 25 February, Berlusconi succeeded in grabbing the headlines. His tactics have helped reverse the decline of his Freedom People movement since he snatched back the helm in December.

Berlusconi's remarks, combined with allegations at the weekend of a colossal slush fund at a bank traditionally close to the left, looked set to electrify a hitherto lacklustre campaign. The election is crucial to the stability of Italy and the eurozone. Italy's economy is the biggest in the single currency area' troubled periphery, and with huge public debts and scant potential for growth, it can ill-afford a hung parliament.

The left-leaning daily La Repubblica reported at the weekend that prosecutors were trying to find out what had happened to €2.6bn (£2.2bn) paid into a London bank account during the 2007 sale of Banca Antonveneta to the world's oldest bank, Monte dei Paschi di Siena (MPS), which has traditionally had links the left.

Of the total, €1bn appeared to be for a transaction with an international bank, but the other €1.6 billion was apparently unaccounted for and prosecutors suspected the cash had been drip-fed back to Italy to form a slush fund, the paper said.

True or false, the allegations could prove hugely damaging to the front-running PD. Its leader, Pierluigi Bersani, hit back at the party's accusers, saying: "We shall tear them to pieces".

It was not clear who might have benefited and there was no suggestion that any other institution involved in the sale had committed wrongdoing. MPS's current management has said it is co-operating fully with the prosecutors.

La Repubblica said the prosecutors' findings would be withheld until after polling. But that raised the prospect of a steady trickle of media revelations and allegations in the runup to the vote.

The PD is already under pressure over claims of gross mismanagement at Tuscany's beleaguered "red bank". MPS bosses are alleged to have entered into a string of high-risk derivative trades and hidden their losses from the central bank. Berlusconi, whose conservative alliance is catching up on the PD and its allies, said: "If the left isn't up to running a bank, it certainly isn't up to running the country."

The prime minister, Mario Monti, whose coalition is lying third, said: "The PD is involved in this affair because it has always had great influence [on MPS]." But Monti too is vulnerable to criticism that he is keeping MPS afloat by putting taxpayers' money at risk. On Friday, shareholders endorsed a second bailout in which the government will lend the bank €3.9bn.

The MPS affair could also inject new life into the flagging campaign of the internet-based Five Star Movement (M5S), fronted by the blogger and comedian Beppe Grillo. The M5S has long targeted corruption in high places. The website Termometro Politico, which keeps a running average of poll results, calculated Grillo's movement was set to take around 13% of the vote.

With a predicted 37-38% of the vote, the PD and its allies look assured of a majority in the lower house. Under Italy's electoral system, the alliance that comes first gets a bonus to assure it of more than half the seats. But the rules for the upper house are different, and there the PD and the more radical Left, Ecology and Freedom (SEL) party look as if they will fall short of a majority.

Since the two houses of parliament have equal powers, that would mean deadlock unless the centre-left found a coalition partner. With Grillo discounting a deal of any kind, the only realistic prospect would be Monti's loose alliance of liberal reformists, conservative Christian Democrats and reconstructed neo-fascists. But that would make for a notably - and perhaps unworkably - heterogeneous cabinet.