Silvio Berlusconi’s decision to stand in Italian elections increases the risk of a large populist bloc in parliament that could severely hinder attempts to continue the legacy of outgoing Prime Minister Mario Monti.

Monti, the man foreign governments and investors desperately want to continue governing Italy, announced his intention to resign on Saturday, soon after Berlusconi’s PDL party withdrew its support from his technocrat government and launched a frontal attack on his austerity policies.

Monti’s decision followed Berlusconi’s announcement that he would stand as the People of Freedom (PDL) candidate in the election expected in mid-February.

Some of the jitters on financial markets since then - which have pushed up the effective interest rate on Italian government bonds - seem to have been prompted by fears that the scandal-plagued media magnate could return as prime minister.

While this is a remote possibility given the PDL’s low ratings in opinion polls, there could still be plenty of reason for nervousness.

Berlusconi’s tactics appear aimed not at winning the election but to have enough power in the Senate or upper house to make life difficult for the pro-European centre-left government expected to succeed Monti. It would also help Berlusconi, who was forced from power a year ago, to protect his troubled personal interests.

This could undermine centre-left leader Pier Luigi Bersani’s promise largely to continue Monti’s prudent economic policies.

“This is Berlusconi’s calculation. He hopes to have a hung Senate ... He hopes to be in a situation where he doesn’t govern but prevents government,” former diplomat and commentator Sergio Romano told Reuters.

Berlusconi seems intent on reviving the fortunes of his faltering party by espousing the anti-Monti rhetoric of the populist 5-Star Movement. This has overtaken the PDL in opinion polls and is now drawing around 20% support due to public anger over the pain of a year of deficit-cutting austerity.

Monti has directly rebutted PDL criticism of his austerity policies since the weekend, painting them as ill-informed, and revived his repeated warnings against the danger of anti-European populism. European leaders have lined up to praise him and urge a continuation of his policies.

Since declaring his candidacy, Berlusconi has railed against Monti, accusing him of worsening Italy’s situation with his rigid austerity mix of higher taxes and spending cuts.

“The Monti government has followed the Germano-centric policies which Europe has tried to impose on other states and it has created a crisis situation much worse than where we were when we were in government,” he told his Canale 5 television.

Romano said Berlusconi wanted to revive his party by taking votes from the same constituency as the 5-Star Movement of foul-mouthed Genoese comedian Beppe Grillo, who calls Monti Rigor Montis and wants a referendum on whether to leave the euro.

Whereas Grillo’s movement is web-based, Berlusconi has huge media power through his television and newspaper empire. “Berlusconi has more firepower,” said Professor Gianfranco Pasquino of Bologna University.

Berlusconi’s return to centre stage and Monti’s announced resignation have almost certainly scuttled attempts to reform a much maligned electoral law.