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LaPresse) ITALY OUT, Associated Press
Italian Reforms Minister and Northern League party Leader Umberto Bossi waves to supporters during a party rally in Pontida, Italy, Sunday, June 19, 2011. Beleaguered Premier Silvio Berlusconi has come under pressure on two fronts: 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.

ROME — Premier Silvio Berlusconi's key political ally issued an ultimatum Sunday to the embattled Italian leader, saying he must lower taxes, decentralize government and end the country's participation in the Libyan war if he wants to remain in power.

But at the same time, Northern League leader Umberto Bossi said early elections would be an unwise gift to the opposition — indicating that for now, at least, Berlusconi could count on his support.

Bossi listed his demands at the League's annual rally in the party's power base near Bergamo. The speech was eagerly anticipated since Berlusconi's political survival has been put in question following two recent electoral drubbings.

The premier, whose popularity has shrunk amid an underage sex scandal and Italy's stagnant economy, needs the League's support to stay in power until his five-year term ends in 2013.

Bossi said Berlusconi's government could last its term and warned that early elections would only favor the opposition. But he said Berlusconi must respond to the League's demands, including moving at least two ministries out of Rome to the north.

"It's not a given that we will go with Berlusconi in the next elections," Bossi told the crowd decked out in the League's trademark green. "It will depend on the choices that are made. The leadership of Berlusconi can finish in the next election if, logically, they attentively listen to the proposals that we give him."

The League has long complained that the government 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 wants at least the industry ministry moved to the Lombard region which is home to Italy's business capital Milan.

Bossi also demanded tax cuts, revisions in decrees so that mayors have more money at their discretion to spend on security, and he demanded an end to Italy's participation in Libya's civil war so the money could be diverted to offset tax cuts.

The League has been vehemently opposed to the war because of fears it would unleash waves of refugees on Italy's shores. In reality, most of the 20,000 refugees who arrived in Italy in recent months left from Tunisia following the unrest there, not Libya.

The League is heavily anti-immigrant, and Bossi and another top League official, Interior Minister Roberto Maroni, drew cheers from the crowd when hailing agreements Italy brokered with Tunisia's new government to return migrants.

Berlusconi has long been beholden to Bossi's support. Bossi brought down his first government in 1994 and his support in this, Berlusconi's third term, has become critical following Berlusconi's split from another ally last year.

But both the Northern League and Berlusconi's party saw their candidates lose out in local elections last month. And Berlusconi was dealt a stinging political blow last week when Italians voted in referendums to block some of his key projects to allow nuclear energy and privatize the water supply.

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 Bossi insisted on tax cuts, particularly for the small-to-medium sized businesses of the north that form his core constituents.