By Angelo Amante and Gavin Jones
ROME (Reuters) - Former Prime Minister Matteo Renzi said Italy's government could collapse after his small party boycotted a cabinet meeting over a contested justice reform and the prime minister suggested he was ready to resign.
Renzi's centrist Italia Viva party is in the coalition with the anti-establishment 5-Star Movement and the centre-left Democratic Party (PD), but he has constantly taken centre stage in coalition bickering since it was formed last September.
While opinion polls give his party only about 4% of votes, its support is crucial in parliament and particularly in the upper-house Senate, where the government majority is very thin.
On Thursday, the cabinet approved a reform of the statute of limitations, which disbands trials if a verdict is not reached within a set limit.
Renzi, who opposes the reform, challenged Prime Minister Giuseppe Conte to put together a new coalition after Conte appealed for unity among the feuding ruling parties.
If Conte "wants to set up a new ruling coalition we won't oppose it", Renzi said on Thursday in a videomessage posted on Facebook.
"We'll cheer you on, but we'll never be the ones who give up an idea to keep a seat", he added.
Renzi's party had threatened to present a no-confidence motion against justice Minister Alfonso Bonafede, a prominent member of the 5-Star movement.
"If this happens, I would act consequentially," Conte said, suggesting he could resign if Renzi presented such a motion.
"We don't want to replace Italia Viva in the coalition with another party but they must be clear on what they want to do."
Time limits for prosecutions have been at the centre of fierce political debate for years, with magistrates saying it is all but impossible to reach a definitive verdict for a multitude of financial crimes within the prescribed time frame.
One notable beneficiary of the statute of limitations has been former prime minister Silvio Berlusconi, who has seen more than 10 trials against him collapse because of time constraints.
A survey this week by the Ipsos agency showed just 8% of Italians think Renzi is acting for the good of the country, compared with 85% who said he was driven by self-interest.
However, the market did not react to the disputes within the coalition. Italian bond markets were little changed in early trade, with the spread between Italian BTPs and safer German Bunds at 134 basis points from 132 on Thursday.
"In theory, such tension might eventually lead to a collapse of the government, however we do not think that we are there yet, and we expect yesterday’s tension to ease," Unicredit said in a report released on Friday.
The bank added that a government crisis would not lead to a dissolution of parliament and to snap elections, at least until a referendum on a constitutional reform scheduled for the end of March has taken place.
(Reporting by Gavin Jones and Angelo Amante, Writing by Gianluca Semeraro and Angelo Amante, additional reporting by Giselda Vagnoni, Editing by William Maclean)