Berlusconi legal troubles raise the heat in Italy

ROME (AFP) - Italy's coalition government came under pressure on Wednesday from members of Silvio Berlusconi's centre-right party protesting the former premier's legal troubles and from bad news on the economic front.

Lawmakers from the People of Freedom party, a member of the coalition, suspended parliamentary activities for a day after Italy's top tribunal on Tuesday announced a key court date for the scandal-tainted Berlusconi.

The hearing could deliver a final verdict in a tax fraud case against Berlusconi that might mean a five-year ban from politics and a one-year prison term.

It is set for July 30 - far earlier than expected.

If confirmed, the sentence would still have to be approved by the Senate where Berlusconi has a seat.

Berlusconi supporters condemned what they said was a "plot" against their leader and an example of "arbitrary justice", and one particularly ardent top party member threatened to bring down the government.

But Transport Minister Maurizio Lupi, also a member of Berlusconi's party, was more reassuring, saying: "We will continue doing our job and move on."

Berlusconi has already lost one appeal in what is one of several ongoing cases against the billionaire tycoon, who was also convicted last month of having sex with an underage prostitute and abuse of office.

The court said in a statement on Wednesday that it had scheduled the much earlier date for the hearing because one of the charges in the case risked expiring under a statute of limitations on August 1.

"There is no frenzy. Senator Berlusconi is being treated like any other defendant," said Giorgio Santacroce, the president of the court.

Meanwhile, lawmakers from the new Five Star Movement protest party staged a sit-in outside the Parliament in Rome to protest against the political climate.

Beppe Grillo, the movement's firebrand leader, said the current parliament could not continue given the economic situation and he asked President Giorgio Napolitano to call new elections "if necessary".

"We need a change to save this country," he said.

Prime Minister Enrico Letta, whose government was only installed two months ago after a tough compromise with Berlusconi, meanwhile called for "team spirit" and a "cohesive community" to overcome the economic crisis.

The political rumblings come at a sensitive time for the Italian economy, which has endured two years of recession that shows little sign of easing just yet.

Ratings agency Standard and Poor's on Tuesday lowered its ratings for Italy, putting it on the same level as Bulgaria and below Russia, warning that the deficit could go higher than expected and cutting its growth forecast.

The news came after the International Monetary Fund last week also cut its forecast for Italy this year to a contraction of 1.8 per cent, although it predicted better-than expected-growth of 0.7 per cent in 2014.

Christian Schulz at Berenberg bank said Tuesday's downgrade was a sign that the general election in February and the two-month political deadlock that ensued "may have weakened fiscal discipline".

"Recent steps like the postponing of a VAT (value-added tax) increase and modest investment programmes signal further slippage ahead," he said.

Politically, he said, the effect may be favourable.

"The rating downgrade may help Prime Minister Letta to restore a sense of realism and urgency," he said.

Analysts at UniCredit, Italy's biggest bank, said the downgrade might cause some "short-term volatility" but would have a "very limited impact" on borrowing costs.

They said the timing was surprising "considering the recent data releases supporting the view that we might see the end of the recession before year-end".

There were also some encouraging reports on Wednesday, with new data showing industrial output had inched up 0.1 per cent in May after three consecutive decreases.

But Italy's central bank governor Ignazio Visco said the country was still in a "difficult transition".

"The margins of uncertainty on the timing and the intensity of a recovery are high because of the risk of a slowdown in the global economy," Mr Visco said.