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Berlusconi on the brink over emergency growth plan

By Colleen Barry

Associated Press

Published: Tuesday, Oct. 25 2011 9:05 a.m. MDT

FILE - In this Thursday, Oct. 13, 2011 file photo, Italian Premier Silvio Berlusconi looks on after delivering his speech at the Lower Chamber, in Rome. Pressure built on Italy's embattled Premier Silvio Berlusconi as he struggled Tuesday, Oct. 25, 2011, to muster support for an emergency growth plan, which the EU wants within hours and which could cost the tenacious leader his job. Berlusconi has survived scandals, court cases and dozens of confidence votes, but experts say this economic plan will be one of the most critical tests yet of is grasp of the country's leadership.

Andrew Medichini, File, Associated Press

MILAN — Pressure built on Italy's embattled Premier Silvio Berlusconi as he struggled Tuesday to muster support for an emergency growth plan, which the EU wants within hours and which could cost the tenacious leader his job.

Berlusconi has survived scandals, court cases and dozens of confidence votes, but experts say this economic plan will be one of the most critical tests yet of his grasp on the country's leadership.

Eurozone governments are trying to come up with a comprehensive plan to tackle their debt crisis by Wednesday. As part of that, they demanded on Sunday that Italy draft new economic measures by then, arguing it would be pointless to protect the country from market turmoil if it didn't pull its own weight.

EU officials say they will not present their comprehensive plan, upon which global markets are pinning their hopes for the survival of the euro, if Italy doesn't agree to new economic measures.

But Berlusconi has found little support within his coalition for such a move. Crucially, he faces resistance from his powerful ally, the Northern League, a minority coalition party led by Umberto Bossi and without whose support his government falls.

"Berlusconi has an immovable object at home which is Bossi and the Northern League, and an unstoppable force abroad which is the European Union, so he's in a very, very difficult position," said James Walston, a political science professor at American University in Rome.

Berlusconi was locked in meetings with Finance Minister Giulio Tremonti and key party members in Rome, but there were no immediate reports of progress.

Bossi himself conceded that the government is at risk.

"Let's say the situation is difficult, very dangerous," he told reporters in Rome.

A Cabinet meeting to draft the emergency growth measures ended Monday evening in silence — a clear indication of discord within the government majority.

The European Union wants Italy to raise its standard pension age from 65 to 67, change the legal system to encourage investment and pass other reforms to improve growth. All are measures that have been talked about for years in successive governments, but there has been little political will to see through the unpopular decisions.

The Northern League, whose constituency is made up of workers in productive northern Italy, staunchly opposes raising the pension age.

But it's a move that partners like Germany view as critical. Germany is raising its pension age to 67 for anyone born after 1964 and Chancellor Angela Merkel will have a hard time explaining to voters at home why Europe's largest economy should be ready to help countries whose workers retire earlier.

A policy impasse this time could cost Berlusconi his power.

The failure of Berlusconi's majority in parliament to pass a routine measure earlier this month shows just how tenuous his hold on power has become. Berlusconi survived with a vote of confidence, but the impression remained that his government is weaker than ever — and could fall on any test.

Ratings agencies have cited the government's inaction and failure to draft growth measures as reasons for downgrading Italy's growing debt, now €1.9 trillion ($2.64 trillion), nearly 120 percent of GDP and the second highest in the eurozone after Greece.

Despite the ratings agencies' lack of faith in Berlusconi, analysts in Italy caution that his ouster could bring months of political deadlock until a new parliament is elected. It would be up to Italy's President Giorgio Napolitano to decide to retain Berlusconi in power pending new elections, or install a technical government, which also would require the cooperation of parliament.

"I believe at this moment, a government crisis would be a disaster, because in the next months we have a huge quantity of debt that needs to be refinanced. A government crisis would destroy the market trust," said Francesco Giavazzi, an economist at Milan's Bocconi University.

The outgoing governor of Italy's central bank, Mario Draghi, has already expressed concern that rising borrowing costs are threatening to eat up a chunk of the €54 billion in austerity measures approved by parliament last month.

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Gabriele Steinhauser in Brussels and Eugenio Montesano in Rome contributed to this report.

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