Italy Govt hangs by thread as coalition crumbles

Italian Prime Minister Silvio Berlusconi has refused to step down despite a party rebellion that has brought his centre-right coalition to the brink of collapse in the face of a growing economic crisis.

Berlusconi is widely believed to have already lost the numbers he needs to survive in parliament but he told reporters at a G20 summit in France: "We have a majority which I continue to believe is solid and so we will continue to govern."

The 75-year-old media magnate described party rebels as traitors to the country but said they would return to the fold once he spoke to them, despite the economic crisis that has fuelled an open revolt in his ruling PDL party.

Underlining the foreboding atmosphere, yields on 10-year Italian bonds hit a euro lifetime high of 6.43 percent at one point on Friday, close to levels which led to bailouts of Ireland and Portugal.

President Giorgio Napolitano issued the latest in a series of alarmed calls for political consensus to pass painful economic reforms, saying the country was suffering a grave crisis of international confidence.

Berlusconi, caught in the crossfire from European powers and the party revolt at home, agreed at the summit to IMF monitoring of economic reforms which he has long promised but failed to implement. He said he had turned down an offer of IMF funding for Italy.

All this may soon be irrelevant to the prime minister who returned home on Friday to face what looks increasingly like a deadly rebellion by his own supporters.

The strains in his government were on display in Cannes where Economy Minister Giulio Tremonti -- with whom he has long had frigid relations -- refused to directly answer a question on whether he agreed Berlusconi could continue.

With financial markets in turmoil over Greece, and Italy viewed as the next domino to fall in the euro zone crisis, calls are mounting for a new government to carry through reforms convincing enough to regain international confidence.

Berlusconi says the only alternative to him is an early election next spring, rather than the technocrat or national unity government urged by many politicians and commentators.

Two deputies from Berlusconi's PDL party this week defected to the centrist UDC, taking his support in the 630-seat lower house of parliament to a likely 315 compared with the 316 he needed to win a confidence vote last month.

But at least seven other former loyalists have called for a new government and could vote against him.

"The (ruling) majority seems to be dissolving like a snowman in spring," said respected commentator Stefano Folli in the financial daily Il Sole 24 Ore. Other commentators spoke of an "inexorable" revolt against Berlusconi.

Even Defence Ministry undersecretary Guido Crosetto, a Berlusconi loyalist, said on television: "I don't know how many days or weeks the government has left. Certainly a majority relying on a few votes cannot continue for long."

Berlusconi, one of Italy's richest men, still has significant powers of patronage and he and his closest aides are expected to spend the weekend trying to win back support for a parliamentary showdown on Tuesday.

Some rebels have already threatened to vote against Berlusconi in the vote to sign off on the 2010 budget.

Berlusconi faced concerted calls to resign when he lost a previous vote on this routine measure, which was almost unprecedented. Although it is not a confidence motion, he would come under huge pressure if he suffered a second defeat.

"Unpopular prescriptions are necessary and this challenge cannot be faced with a 51 percent government," said UDC leader Pier Ferdinando Casini, in a reference to Berlusconi's weakness and a widespread feeling that the reforms can only be passed with a broad consensus.

The premier has promised European leaders he will call a formal confidence motion within 15 days to pass amendments to a budget bill incorporating new measures to stimulate growth and cut Italy's huge debt. That will be in the Senate where he has a more solid majority but it could still bring him down.

Berlusconi said in Cannes these amendments contained 90 percent of reforms promised to European leaders, but a decree law would also be drawn up with further measures.

Berlusconi, beset by a string of sex scandals and court cases, has consistently resisted pressure from groups ranging from a powerful business lobby to the Catholic Church to stand down.

President Napolitano said during a visit to the southern city of Bari that Italy was at the centre of concern by international and European institutions and must quickly implement reforms it had promised to EU leaders.

"A serious crisis of confidence has emerged towards our country, in Europe and not only in Europe. We must be aware of this and rather than feeling wounded, be spurred on in our pride and determination to respond," Napolitano said.