Berlusconi ally pressures Italian PM on tax cuts

By Frances D'emilio

Associated Press

Published: Saturday, June 18 2011 11:10 a.m. MDT

ROME — Beleaguered Premier Silvio Berlusconi came under pressure on two fronts Saturday: His crucial coalition ally demanded tax cuts or early elections, and Italy's credit rating appeared in danger due to high public debt and a laggard economy.

The Northern League, Berlusconi's main partner in the three-year-old government, wants more say on key policies as the premier's popularity slips. Berlusconi's main candidates in mayoral elections were defeated last month and voters later rejected some of his pet projects, including reviving nuclear power.

The credit ratings agency Moody's, meanwhile, warned late Friday it might reduce Italy's credit rating because of concerns about the country's ability to spur growth and reduce its debt, one of the highest in Europe. Standard and Poor's has already cut its rating outlook for Italy's debt from stable to negative and eurozone chief Jean-Claude Juncker warned Saturday that contagion from Greece's debt crisis could spread to other European countries, including Italy.

Berlusconi's finance minister, Giulio Tremonti, has been resisting tax breaks since Italy already slashed spending and cannot afford to lose revenue. But a Northern League official in Berlusconi's Cabinet, Roberto Calderoli, pressed Saturday for tax changes now.

Tremonti is to present plans later this month to reportedly balance Italy's budget in three years.

League leader Umberto Bossi is expected to step up the pressure Sunday at his party's annual rally, possibly even laying out conditions for his continued support of Berlusconi.

The anti-immigrant League also bitterly opposes Italy's involvement in NATO's Libya operation, fearing it will drive more refugees to Italy.

Union leaders also clamored for tax breaks at rallies Saturday in Rome that drew tens of thousands of members. Workers drawing paychecks have complained for decades that their tax deductions are unfairly high because of widespread tax evasion by the legions of self-employed.

"There's no alternative" to tax reform, Luigi Angeletti, head of the UIL labor confederation, thundered at a rally, adding if Berlusconi's government fails to overall the tax system, "it should pack up and go."

Calderoli said he agreed with Angeletti that "either the government carries out the reforms or it's best to call it quits."

Besides taxes and Libya, the League has also stepped up its duel with Berlusconi's conservative Freedom People's Party over how much power should be centered in Rome.

League supporters complain the Italian capital wastes much of the affluent north's tax revenues on the underdeveloped south and on Italy's centralized bureaucracy. Bossi has for years called for a federal system for Italy's regions, and now his party is demanding that some ministries move from the Italian capital to Milan, the nation's financial heart and one of Bossi's power bases.

The governor of the Rome area, Renata Polverini, a leader in Berlusconi's party, retorted Saturday that if need be, her forces would start a petition drive to demand that all ministries stay in Rome.

Sunday's Northern League rally in Pontida reflects the roots of Bossi's political movement. Pontida was where, in 1167, the historic Lombard League was born, uniting northern towns in a challenge to the Holy Roman Emperor.

Bossi, dismissed decades ago as a regional oddity and once the League's only representative in Parliament, now commands a party that is the lynchpin of Berlusconi's coalition government.

But some League candidates took their own beating in local elections last month, perhaps due to Bossi's hitching his fortunes to Berlusconi while failing to deliver tax reforms.

Berlusconi, meanwhile, appeared in court Saturday in Milan in one of four criminal cases against him. Three stem from dealings linked to the billionaire's media empire, including the trial hearing Saturday. The fourth, the most sensational case, has Berlusconi on trial for allegedly paying for sex with a minor and allegedly using his office to try to cover it up.

Berlusconi denies wrongdoing in all cases and contends he is the victim of leftist prosecutors.

Colleen Barry contributed to this report from Milan.

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