Italian voters in local elections have delivered a massive blow against Prime Minister Silvio Berlusconi and his ruling People of Liberty party.

The result, which saw the opposition take control of Milan and Naples, could put further strain on the already fragile government coalition and is a clear signal that the Prime Minister could lose the 2013 general election, that is if he survives that long in office.

Berlusconi, who turned the vote into a referendum on himself and his government, is the big loser in these elections. He had said that losing Milan, his political heartland and the city where he built his business empire, was “unthinkable” and a defeat for his candidate would turn Italy’s financial capital into a city of gypsies and Islamists.

Yet the electorate voted with a 55 per cent majority for the candidate of the centre-left, ending two decades of rule by the centre-right.

In Naples the result was even more devastating as Berlusconi’s candidate was crushed by the centre-left which took 65 per cent of the vote. It seems that the Berlusconi magic is finally wearing thin and Italians are getting fed up with the Prime Minister’s alleged sex scandals, his trials – where he faces charges of corruption, tax fraud and paying an underage prostitute – and his constant battles with the judiciary.

At the recent G8 summit, for example, Berlusconi was even overheard telling a clearly embarrassed US President Barack Obama that left-wing judges in Italy represent “almost a dictatorship”.

“We have presented a justice reform that is fundamental to us. In Italy, we have almost a dictatorship of leftist judges,” microphones picked up Berlusconi telling Obama, through an interpreter.

Needless to say, this did not go down well with many Italians who regard the Prime Minister’s obsession with the judiciary as being to the detriment of far more press-ing issues, such as the fragile economic recovery.

Although the loss of Milan is a bitter blow to Berlusconi, the Prime Minister is determined to carry on governing until 2013 and has shown no signs of wanting to step down or to call a snap election.

“It’s clear we have lost. The only thing to do is to hold our nerve and carry on,” Berlusconi told the media after the result was officially announced.

In such a situation most European political parties would change their leader. However, it is unlikely that this will be the case with Berlusconi and his party.

This is mainly because the party is Berlusconi’s creation and does not have much of a structure. In fact, Berlusconi is the glue that keeps the party, which consists of former Christian Democrats, Liberals, Republicans, Social Democrats and National Alliance members, together.

It is also true that internal dissent within Berlusconi’s People of Liberty party is said to be on the increase, something unthinkable until recently. Nevertheless, the most that can be expected to happen is that the Prime Minister will, closer towards the end of his term, announce that he intends to step down and consequently choose his successor.

Berlusconi’s survival until then, however, depends on the continued support of the Northern League, the Prime Minister’s junior coalition partner led by Umberto Bossi.

Observers believe the Northern League, which was critical of Berlusconi’s campaign in Milan, has become increasingly frustrated with the Prime Minister and is questioning whether its alliance with Berlusconi’s party is damaging it. It also performed badly in the local elections.

After the first round of voting in Milan three weeks ago, Mr Bossi said his party would not allow itself to be “dragged down to the ground” by Berlusconi.

If the Northern League does withdraw its support for Berlusconi in Parliament and a snap election is held, the party would probably gain electorally.

However, if the centre-left had to win nationally the Northern League would lose the possibility of having tax and spending powers devolved to the regions, something the present government is resolved to do. So Bossi will have to balance his options very carefully.

It is probable that Berlusconi will carry on governing until 2013, but we can’t expect any major reforms during this period, which is bad news for the Italian economy.

It is important to keep in mind that last summer Berlusconi lost his absolute parliamentary majority after 33 party rebels formed the Future and Freedom for Italy party under the leadership of Gianfranco Fini.

The Italian government has not collapsed since then because whenever its survival was threatened, Fini’s rebels abstained in a parliamentary vote.

In the meantime, Berlusconi’s government is preparing to cut the Budget deficit by €40 billion after the ratings agency Standard and Poor’s cut its outlook for Italy’s A+ rating to “negative” from “stable”.

Italy has been the eurozone’s worst performer for more than a decade, growing at an average rate of just 0.2 per cent between 2000 and 2010.

Last week, Italian Central Bank governor Mario Draghi, who is to head the European Central Bank in September, attacked the failure of successive Italian governments to implement economic reforms and to root out the “vested interests oppressing the country”.

With Berlusconi’s dwindling popularity, agitated coalition allies and only a relative majority in Parliament, the Prime Minister is unlikely to have much appetite for such reforms.