September 22, 2005

Minister quits in blow to Berlusconi

By Alberto Sisto and Crispian Balmer

ROME (Reuters) - Italy's economy minister resigned on
Thursday in a row over the Bank of Italy and the budget,
dealing a major blow to Prime Minister Silvio Berlusconi months
before an election that polls say he is likely to lose.

Domenico Siniscalco said he was standing down after 14
months in the job because of the government's unwillingness to
oust Bank of Italy Governor Antonio Fazio over a bank scandal.

He was also angry over moves by coalition allies to water
down his draft 2006 budget, which has to be approved by the
cabinet by the end of September.

"I have talked to Berlusconi repeatedly about the budget
and the Bank of Italy since August, but to no avail,"
Siniscalco was quoted as saying by the Web site of Corriere
della Sera daily.

His abrupt departure came at a delicate moment for
Berlusconi, who is struggling to prop up his sagging support in
opinion polls, leaving him with little more than a week to
strike a deal with his partners over the budget package.

The prime minister said he would meet his allies later in
the day to nominate a new economy minister. "I am in excellent
spirits," Berlusconi insisted.

Coalition leaders said they would meet at 5 p.m. (1100 EDT)
on Thursday to discuss Siniscalco's resignation.

Centre-left opposition parties urged him to stand down,
saying Italy had to go to the polls immediately and could not
wait for the scheduled general election in May.

"A government which can't agree on the most important and
defining part of its business, the budget, so that the economy
minister is forced to resign must do just one thing -- quit,"
centre-left leader Romano Prodi said.

"The only solution is early elections," added Prodi, the
former European Commission president.


Coalition leaders signaled the government would carry on
but said Berlusconi needed to lead from the front and end
months of coalition feuding.

Berlusconi might try to persuade his allies to let him take
over from Siniscalco on an interim basis -- as he did in July
2004 when the previous economy minister, Giulio Tremonti, quit
after a coalition row.

Siniscalco's departure put a further question mark over the
future of Fazio, who is resisting pressure to step down over
accusations he showed bias against Dutch bank ABN AMRO which
was bidding to take over an Italian lender.

Fazio, who is independent of the government, has denied any
wrongdoing and despite the uproar over Siniscalco's resignation
was due to leave on Thursday to represent Italy at an
International Monetary Fund meeting in Washington.

Siniscalco, an economist with no party affiliation, was
also scheduled to attend the meeting but was unhappy at the
prospect of having Fazio in the Italian delegation.

In an interview with La Repubblica newspaper on Thursday,
Siniscalco described Fazio as an institutional "monster" and
said he was appalled by the government's failure to resolve the
problem. "I'm not embittered, I'm scandalized," he said.

Berlusconi has held back from demanding Fazio's head
because his most loyal coalition partner, the Northern League,
has stoutly defended the central banker.


The first task facing the new economy minister will be to
draw up the budget, which has to clear the government by the
end of the month and be approved by parliament before year-end.

Analysts fear Berlusconi might push through voter-friendly
spending despite a swelling budget deficit.

European Union Economic and Monetary Affairs Commissioner
Joaquin Almunia warned Italy on Thursday that it must fulfil
promises to continue cutting back its excessive budget deficit.

Coalition members fear a rigorous budget might scupper any
chances they have of regaining power.

Siniscalco had circulated draft proposals calling for
deficit cutting measures worth 21.3 billion euros, but the
plans received short shrift from some government allies.

If Berlusconi does not become interim economy minister, the
job might be handed back to the feisty Tremonti. Alternatively
Deputy Economy Minister Giuseppe Vegas might take over.