Berlusconi Says Italian Government Safe For Now

by
Reuters
Italian centre-right leader Silvio Berlusconi said on Thursday his People of Freedom party would continue to back Enrico Letta's broad coalition government despite growing party calls to withdraw its support.

* Berlusconi says must back government to get tax cuts

* Centre-right hawks want to bring down PM Letta

* Coalition tensions weaken reform prospects

* Bond auction sees weaker than expected demand

Italian centre-right leader Silvio Berlusconi said on Thursday his People of Freedom party would continue to back Enrico Letta's broad coalition government despite growing party calls to withdraw its support.

Berlusconi's apparently dovish stance gives some respite to Letta, who is grappling with a chronically bickering coalition, economic recession and signs of growing market nervousness.

The fragile left-right coalition which has been in office since April has been weakened by legal setbacks for the 76-year-old media tycoon and former prime minister, whose support is vital for its survival.

Berlusconi told a meeting of the PDL's leadership that it must remain united in order to achieve tax cuts it has promised its voters. He called on party hawks to tone down their attacks on the prime minister and his cabinet.

"The government has to carry on, we have to put an end to the attacks by individual members, but that does not mean we will give any ground on the economic issues," Berlusconi told the meeting, according to sources present.

The PDL on Wednesday boycotted all legislative activity in parliament in protest against a decision by magistrates to fast-track a second and final appeal by Berlusconi against a conviction for tax fraud connected to his business empire.

Berlusconi, who is also appealing a separate conviction for abuse of office and paying for sex with an under-age prostitute, had hoped that if the appeal dragged on the case would have expired due to the statute of limitations.

Earlier on Thursday, the PDL's Senate leader Renato Schifani said it should pull the rug on the government if Berlusconi's sentence to four years in prison and a five-year ban on public office is confirmed in the appeal, scheduled for July 30.

ELECTION THREAT

Berlusconi's pledge of loyalty to Letta may be less reassuring than it seems. The media mogul is known for his sudden changes of stance and it remains to be seen if he will maintain his backing if the verdict goes against him.

Many commentators believe that if Berlusconi becomes convinced his backing for Letta is offering no protection from the courts, he will prefer to gamble on a new election which could see his party returned to power.

And by tying his support to cuts in housing and sales taxes Berlusconi is adding to the pressure on Letta, who faces strained public finances and has little fiscal room for manoeuvre.

Italy is mired in its longest post-war recession and on Tuesday Standard & Poor's cut its sovereign credit rating to two notches above junk, citing rising debt, concerns about the economy and political divisions {ID:nL1N0FF18G].

Debt auctions this week reflected market nervousness. One-year borrowing costs rose to their highest since March at a sale on Wednesday, while an auction of 3-year bonds on Thursday drew weaker demand than expected..

Berlusconi's travails are hurting the already strained relations between the PDL and Letta's centre-left Democratic Party (PD) led by former trade unionist Guglielmo Epifani, making the prospects for economic reform look even more distant.

"This situation of uncertainty is no longer bearable and the PDL has to decide what it wants to do," Epifani told reporters before the PDL meeting. And after Berlusconi's conciliatory message he still appeared unconvinced.

"In the morning they announce they want to pull out of the government, then Berlusconi says 'no, we're going on.' It's a schizophrenic attitude and we need to clarify things," he said in a television news interview with state broadcaster RAI.