Political uncertainty in Italy deepens over Berlusconi threats
* Berlusconi allies renew threat to resign
* Senate committee to decide on Berlusconi future on Oct. 4
* Pressure rises as PM Letta seeks to reassure foreign investors
By James Mackenzie
ROME, Sept 26 (Reuters) - Centre-right deputies supporting Silvio Berlusconi renewed threats to resign if their leader is expelled from parliament and the left demanded an end to their "blackmail", deepening uncertainty in Italy's fragile ruling coalition.
Italy has been close to crisis since Berlusconi, a partner in the coalition government, was sentenced to four years in prison, commuted to a year under house arrest or in community service, for tax fraud. It included a ban on holding public office that is under appeal.
Late on Wednesday, Berlusconi's allies made their latest pledge to bring down the government, saying they would resign if a special Senate committee meeting on Oct. 4 voted to strip Berlusconi of his seat.
How serious the threat is difficult to assess following a series of contradictory signals from Berlusconi's allies in parliament, who are divided between a faction of hardliners and more conciliatory doves.
On Thursday, Transport Minister Maurizio Lupi said there was no joint commitment to stand down by the centre-right and any decision to resign would be up to individual deputies.
"The resignation of the parliamentarians is a decision which will depend on the conscience of each individual," he told RAI state radio.
However, the centre-left Democratic Party (PD) said the threats risked undermining the government as it grapples with problems such as its strained public finances to the fate of Italian companies including Telecom Italia and national carrier Alitalia.
"Unfortunately, this back and forth with threats weakens an equilibrium which is already very delicate," Luigi Zanda, Senate floor leader of the PD, told the daily Corriere della Sera newspaper.
PD leader Guglielmo Epifani accused the centre-right of "blackmail" but said the party would not change its approach and would vote to strip Berlusconi of his seat.
Berlusconi's political fate has been in the balance since last month when Italy's highest court confirmed the tax fraud conviction, which is likely to trigger his expulsion from parliament under a procedure going through the Senate committee.
Increasing pressure on the coalition from Berlusconi's Forza Italia (FI), came hours after Prime Minister Enrico Letta sought to reassure international investors in New York of the country's stability. The party had stepped back from similar declarations in recent days.
Letta has repeatedly said that Italy needs political stability while it struggles to emerge from more than two years of recession, rein in a 2-trillion-euro ($2.7-trillion) public debt, and bring its budget deficit under control.
President Giorgio Napolitano, who would have to decide whether to call new elections or seek to build a new coalition if the centre-right pulls out of the government, has also repeatedly said he does not want a vote.
But the constant tension between the coalition partners has undermined reform efforts and ensured that weeks have been wasted in wrangling over issues including tax cuts and Berlusconi's political future.
Financial markets have shown none of the panic seen during previous government crises in 2012 or at the height of the euro zone debt crisis in 2011, but borrowing costs have ticked up during the latest bout of uncertainty. On Thursday, yields on Italy's 10-year bonds rose by six basis points.
Even as the Senate committee votes on Berlusconi's future approaches, a battle is looming over sales tax, which is due to rise by one percentage point in October unless the government can find the resources to cancel it.
Berlusconi's allies are demanding the increase be averted despite the pressure on public finances and a pledge by Economy Minister Fabrizio Saccomanni to resign if the government reneges on its pledge to bring the deficit within European Union limits.
Polls indicate holding an election soon could give a split result like the one which forced the traditionally opposed centre-left PD and the FI to rule together.
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