ROME (Reuters) - Italy's centre-left leader Matteo Renzi faces opposition in parliament next week over electoral reform plans agreed with Silvio Berlusconi which are being closely watched as a test of wider reforms in the euro zone's third largest economy.
The measures are aimed at fixing a system blamed for last year's election deadlock which left no side able to form a government and forced the two main parties of left and right into a fragile coalition that has struggled to pass reforms.
Renzi's arrival at the head of the largest party in Prime Minister Enrico Letta's coalition has brought new momentum to the stalled reform process and he says the plans will be the prelude to broader economic reforms.
Intended to create strong governments capable of surviving a full term, the proposals would benefit big parties and strong coalitions by setting high thresholds for entering parliament.
They would guarantee an ample majority for the winner with a run-off round between the two leading parties, if needed. A separate reform, expected to take longer to pass, would concentrate power in the lower house and demote the Senate to a regional assembly, to avoid deadlock between the two chambers.
The proposals, which Renzi agreed with centre-right leader Berlusconi, over strong opposition from many in his party, go before parliament this week with a deadline for amendments on Monday and a first hearing in the chamber due on Wednesday.
Opposition has come from smaller parties, some of which are in the ruling coalition, which face elimination by new rules requiring a party to get at least 5 percent of the vote to enter parliament as part of a coalition, or 8 percent to enter alone.
Critics, including many in Renzi's own Democratic Party (PD), have also attacked the proposals for not allowing the direct election of individual deputies, with voters obliged to choose from so-called "blocked lists" of candidates chosen by the parties, a condition insisted on by Berlusconi.
"We want voters to be able to choose the deputy they want," Deputy Prime Minister Angelino Alfano said at a rally of his small New Centre Right group which broke away from Berlusconi's Forza Italia party last year to support the government.
After political ructions in Italy added to euro zone turmoil in recent years, the reform is being watched around Europe.
German Finance Minister Wolfgang Schaeuble told the World Economic Forum in Davos that electoral changes were vital to solve the instability that has hampered reform.
Although not in the government, the 39-year-old Renzi has increasingly overshadowed the prime minister, his party colleague Enrico Letta, rebuking the coalition for not moving more quickly on reforms.
Saying early elections would be better than more delay, Renzi insists his proposal package is the best available option.
His disregard for the traditions of the old left has caused strong opposition in sections of his own party which has not been eased by endorsements from Berlusconi who said last week he had "finally found someone in the PD you can reason with".
While opinion polls suggest voters in general support the reform proposals, Renzi's bulldozing style has caused wider problems with Alfano, who could bring down the government if he pulled out of the coalition.
"If the Democratic Party doesn't support its own prime minister, this government cannot continue," Alfano told reporters on Sunday.
Threats to bring down the government have been freely traded in recent months but all sides are aware that an election without a new law would result in even worse deadlock.
Berlusconi, who is banned from parliament after a tax fraud conviction, has refused to budge on direct election of candidates but the PD has shown itself willing to discuss lowering the threshold for entry to parliament and may also be prepared to modify the minimum winning thresholds.
At present a party that comes first with at least 35 percent of the vote automatically gains a majority of at least 55 percent, a bonus many see as over-generous.
(Editing by Robin Pomeroy)