A war of political wills dragged on in Italy over the weekend as Romano Prodi, the centre-left leader, demanded to no avail that Silvio Berlusconi, prime minister, should finally accept that he lost last week’s election.

“He must acknowledge how things went and, I believe, should apologise as well after what he said about fraud,” Mr Prodi told reporters on Saturday.

Mr Berlusconi and his staff still occupy the Palazzo Chigi, the prime minister’s palace in central Rome, one week after the election that gave Mr Prodi and the opposition the narrowest victory in Italy’s modern history.

The deadlock is unsettling financial markets, with the yield spread between Italian and German 10-year bonds rising last week to 0.32 percentage points, its highest level in more than four years.

Mr Berlusconi has adopted a two-track approach to his defeat, arguing firstly that it was the result of fraud, and secondly that the election was so close that the centre-right and centre-left should work together on Italy’s most pressing problems and even form a temporary coalition government.

These tactics have irritated Mr Prodi and his advisers, who say they won fair and square under a set of rules drawn up last year by Mr Berlusconi’s government.

“Enough of all this. It’s certain that if the centre-right had won by a single vote, they would have claimed the right to govern,” said Silvio Sircana, Mr Prodi’s spokesman.

Mr Berlusconi’s hopes of reversing the result appeared to be dashed last Friday when the interior ministry said judges were reviewing a mere 5,266 contested ballot papers instead of the 82,850 originally anticipated - not enough to change the result.

Several ministers in Mr Berlusconi’s government have urged Mr Berlusconi to accept defeat, partly on the grounds that the most intelligent strategy for the centre-right is to let Mr Prodi’s precarious majority collapse of its own accord.

But in a letter published in Saturday’s Corriere della Sera, Italy’s leading newspaper, Mr Berlusconi wrote: “Nothing has changed, regardless of how the official recount ends and whoever gains the majority in the lower house of parliament. We are faced with a stalemate in which, at least on the basis of the popular vote, there are no winners or losers.”

Strategists in Mr Berlusconi’s Forza Italia party said the premier wanted Mr Prodi to co-operate for the good of the country on three issues: the selection of a new head of state, Italy’s planned troop withdrawal from Iraq by the end of this year, and urgent economic issues.

Piero Fassino, leader of the Democrats of the Left, the largest centre-left party, said Mr Prodi’s forces were willing to talk, but only if Mr Berlusconi explicitly acknowledged their victory.

He also redefined the areas open for discussion, saying they should include the electoral law that provoked the present crisis and which the centre-left says must be changed.

The next government is not expected to take office until the second half of May and will almost immediately face the task of preparing Italy’s annual four-year economic programme.

Financial markets are awaiting this document with interest to see if it includes serious measures to tackle Italy’s rising budget deficit and public debt. If it does not, there is a risk that credit ratings agencies will downgrade Italy’s debt.

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