ROME: Silvio Berlusconi has returned to the political scene after a tax fraud conviction, striking a deal with the leader of the largest center-left party on electoral reform that could give Italy badly needed stability.

But the Saturday night agreement between 77-year-old Berlusconi, still head of the center-right Forza Italia party he founded, and Democratic Party (PD) leader Matteo Renzi has divided the governing coalition.

Smaller parties in the coalition of Prime Minister Enrico Letta, who also belongs to the PD, are irate about such an agreement because they could risk extinction under a new electoral system.

The left wing of the PD has accused Renzi, 39, of facilitating the rehabilitation of a convicted criminal. Berlusconi denies the fraud charges and is appealing a separate conviction for paying for sex with an underage girl.

With the highest debt burden in the euro zone after Greece, Italy — mired in its longest post-war recession — is closely watched by financial markets and European partners as a flashpoint for instability in the bloc.

Italy’s politicians are making a fresh attempt to reform the electoral system in the hope of providing steadier and more durable government.

In last year’s election, no party gained enough votes to govern alone, plunging the country into political stalemate before the creation of a broad-based coalition government which has constantly bickered and struggled to produce reforms.