Italy in new crisis as centre-right ministers resign

ROME (AFP) - Centre-right ministers on Saturday resigned from Italy's fragile coalition government, unleashing a fresh political crisis after what Prime Minister Enrico Letta called a "crazy act" of encouragement by their leader Silvio Berlusconi.

All five ministers of the People of Freedom (PDL) party took the decision at Berlusconi's urging, said Angelino Alfano, Italy's deputy premier and PDL party secretary.

The flamboyant former prime minister had dismissed as "unacceptable" a demand by Mr Letta on Friday for parliament to express support for the government next week, in a bid to end a crisis that has driven the bickering ruling coalition to the brink of collapse.

Mr Letta's government was cobbled together following a two-month stand-off after an inconclusive general election in February, and while the government has launched major reforms, it has been hobbled by the tensions.

Mr Letta of the centre-left Democratic Party (PD) has won the confidence of financial markets by managing to keep together the improbable right-left coalition.

But a brewing revolt among Berlusconi's backers boiled over on Thursday when they threatened to resign over the media mogul's legal problems.

A Senate committee was preparing to vote on whether to eject Berlusconi, 76, from the chamber after he was sentenced to a year in prison for tax fraud, a ruling that was upheld by Italy's top court in August.

His allies said the vote would be the ultimate consequence of a long-running left-wing plot aimed at destroying his political career.

On Friday Mr Letta told a Cabinet meeting, tasked with approving key measures to rein in the recession-hit country's budget deficit, that no further legislation would be enacted until the political crisis was resolved.

The Cabinet had convened to determine how to delay a controversial planned rise in value added tax, but the meeting ended in disarray amid the escalating tension over Berlusconi's tax fraud conviction.

As a result, the VAT hike from 21 percent to 22 percent will go ahead, with effect from Tuesday, as economists worry that it will dampen consumption.

In encouraging the PDL ministers to resign, Berlusconi said they should not be "complicit in the latest vexation imposed on Italians by the left".

He added: "The prime minister's decision yesterday to freeze government action, thus leading to the rise in the VAT, is a serious violation of the government pact."

Mr Letta retorted: "To try to justify his crazy and irresponsible act, aimed fully at protecting his personal interests, Berlusconi is... using the VAT as an alibi."

In a brief statement, he added: "Italians will recognise such a big lie... and return it to the sender."

Three-time premier Berlusconi, who was convicted on August 1, is to serve the sentence at home or by doing community service.

But the most biting punishment for the billionaire who has dominated Italian politics in or out of power for the past two decades is that he will henceforth be ineligible for public office.

With the PDL ministers unlikely to return, the next moves on the political chessboard are uncertain. Mr Letta could try to form another government, counting on various defections and the support of left-wing groups.

A new primarily left-wing government may have little room for manoeuvre.

Former comedian Beppe Grillo, head of the anti-establishment Five Star Movment, repeated his call for fresh elections, but these would likely result in just as great a stalemate unless the electoral law is first modified.

President Giorgio Napolitano will play an essential mediating role in the coming days.

The markets may respond badly to the new turn of events in the eurozone's third largest economy still struggling to emerge from a financial crisis.

The International Monetary Fund warned on Friday that tensions within the coalition were a "key risk" for the economy.

Mr Letta, said on Friday as he asked for a show of support from parliament that Italy could not commit "to measures worth billions of euros without a guarantee on the government's continuity."

Mr Letta has repeatedly called for political stability as Italy struggles to emerge from its longest recession since World War II.

The PDL has been pushing hard for the government to delay the tax rise, but to do so Italy would need to find over 3.0 billion euros (S$5.1 billion) to plug the gap and bring the deficit below the EU ceiling.