By James Mackenzie
ROME (Reuters) - Italian Prime Minister Mario Monti warned against a slide into populism on Tuesday as Silvio Berlusconi stepped up attacks on his technocrat government, accusing it of following failed "Germano-centric" policies.
Financial markets have pushed Italy's borrowing costs higher since Monti said he would quit after Berlusconi's party withdrew support for his administration.
Italy's financial crisis has threatened the stability of the euro zone and Monti's European allies want it to continue with fiscal discipline and reforms they believe helped the zone's third-biggest economy avoid a Greek-style collapse.
Berlusconi, Monti's flamboyant predecessor as prime minister who was driven from office last year by the crisis, says he will run for a fifth term to end the recession.
On Tuesday, he dismissed nerves in financial markets, saying the main gauge of investor trust in Italy, the spread between Italian bonds and their safer German counterparts, was "a con".
"The Monti government has followed the Germano-centric policies which Europe has tried to impose on other states and it has created a crisis situation much worse than where we were when we were in government," Berlusconi said in an interview on his own Canale 5 television network.
He accused Germany, the euro zone's biggest economy, of deliberately profiting from the crisis which brought down his government last year to reap speculative profits and lower its own borrowing costs.
Monti, an economics professor drafted in to head an unelected government, plans to resign once next year's budget is passed in parliament and has not said what he will do then.
The former European commissioner has said he is concentrating on his remaining time in government and not thinking about whether to stand as a candidate in the election expected in February.
Speaking on state television on Tuesday, he defended his government's economic record and warned against "oversimplified" election promises that hid the true problems facing Italy.
"It's important that there is this self-discipline on everyone's part so as not to create ruptures with Europe and above all not to treat people like fools but like mature citizens," he said.
He again left his own political plans open, refusing to confirm speculation that he could join a centrist grouping or lend his name to a pro-European reform party.
"Politics is above all a question of culture, that is, trying to give direction to people's ideas," he told state television station RAI.
"I think I did it when I was a professor, I'm trying to do it in this brief period when I'm prime minister, I'm sure that, whatever hat I'm wearing in future, I will continue to do it."
Whether or not he stands for a new term in office, there has been wide speculation that Monti could become Italy's next president, an office which would allow him to play a crucial role in influencing the overall political debate.
"THE SPREAD IS A CON"
Financial markets were calmer on Tuesday, a day after a sharp sell-off when Monti said he was stepping down.
Italian 10-year bond yields were around 4.7 percent, while the risk premium or spread over safer German Bunds had narrowed to 342 basis points, having topped 360 points on Monday.
Opinion polls give Berlusconi's squabbling center-right People of Freedom (PDL) party little chance of winning the vote, with center-left leader Pier Luigi Bersani seen for now as Monti's most likely successor.
Stung by the tone of some comments from European policymakers, Berlusconi accused foreign leaders of making statements that were offensive to Italians.
German Chancellor Angela Merkel said she supported Monti's reform path and was confident it would continue. "I am sure the Italian people will vote in such a way that Italy stays on the right path," she told reporters in Berlin.
Berlusconi, who has made Germany the target of some of his fiercest attacks, said Germany had worsened Italy's crisis last year by ordering all its banks to sell all the Italian debt securities they held in their portfolios.
"This fact brought in 7, 8, 9 billion in revenues. The other American and international funds thought, if Germany is selling, there must be something behind it and they sold too," he said.
He scorned markets and the risk premium over German bonds, a staple of Italian news reports for more than a year.
"The spread is a con, an invention used to defeat a government majority voted for by Italians," he told Canale 5.
"We never heard of it before. People have only been speaking of it in the past year and what does it matter?"
(Additional reporting by Stephen Brown and Gareth Jones in Berlin; Editing by Tom Pfeiffer)
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