September 22, 2005

Italy in upheaval as embattled PM attacks Fazio

By Nelson Graves

ROME (Reuters) - Italy faces twin crises on Friday after
Prime Minister Silvio Berlusconi called on the central bank
governor to quit and a coalition partner spurned his leadership
ahead of elections the government looked set to lose.

In a day of political upheaval, Berlusconi on Thursday was
forced to name a new economy minister after Domenico Siniscalco
abruptly quit in a row over the budget and a defiant Bank of
Italy Governor Antonio Fazio.

The prime minister also for the first time put his
leadership into question, offering to debate with restless
coalition allies whether he should lead the center-right bloc
into general elections next year.

The centrist Union of Christian Democrats (UDC), one of
four coalition partners and for months a thorn in Berlusconi's
side, quickly took up the challenge and snubbed the prime

"There are those who think that the best candidate in 2006
would be Silvio Berlusconi," UDC leader Marco Follini said.
"There are those who, like myself and the UDC, think it isn't
like that."

Speaking on a late night TV talk show after the day's
events Berlusconi said he was "an asset" to the coalition, but
reiterated his willingness to compete for the leadership. "If
there is a better candidate then I am willing to stand down."

Scenting blood, the opposition said the government, split
over issues as crucial as the central bank governor and a
budget due to be presented in only a week's time, should quit
and call snap elections that polls suggest Berlusconi would

"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,"
opposition leader Romano Prodi said.

Responding at last to calls from some of his own ministers,
the prime minister told Fazio he should step down over
accusations he unfairly favored a local bank in a cross-border
takeover fight.

"At this point Fazio's told continuation as Bank of Italy
governor is neither compatible nor opportune," he told a news


Fazio has staunchly resisted the calls for him to quit, led
by Siniscalco, triggering an unprecedented impasse that has
tarnished Italy's international credibility and split the
government ahead of elections due by next May.

In later TV comments Berlusconi said there was "no battle
of wills" between him and Fazio and that only the European
Central Bank could oblige Fazio to quit if it believed he had
broken the law. The government had no power in the matter, he

"We ask Fazio ... if it might perhaps be opportune for him
to resign in view of international markets and ratings
agencies," Berlusconi said.

He named Giulio Tremonti, Siniscalco's predecessor as
economy minister and a harsh Fazio critic, to return to his old
job in a move sure to pile more pressure on the 68-year-old
central bank governor.

In an awkward pairing of antagonists, Tremonti and Fazio
were to represent Italy at meetings of the Group of Seven and
the International Monetary Fund starting in Washington on

The plane carrying Fazio continued toward the U.S. capital
even after Berlusconi had turned against him, a source told
Reuters, in an apparent sign that the governor had no intention
of bowing to pressure -- at least for now.

Fazio, who is independent of the government, has
steadfastly denied any wrongdoing.

But both Tremonti and Siniscalco said accusations of
impropriety, fueled by bugged telephone conversations between
Fazio and Pop Italiana's ex-CEO Gianpiero Fiorani, made his
role untenable.

Tremonti's arrival in Washington was likely to embarrass
Fazio. But in a measure of the political confusion, two of the
four parties in Berlusconi's coalition supported Fazio even
after the prime minister had called on him to quit.

Only a central bank committee considered close to Fazio has
the power to fire the governor.

But when he returns from Washington, Fazio will face
questioning by magistrates investigating Banca Popolare
Italiana's attempted takeover of Banca Antonveneta, judicial
sources have told Reuters.

Commenting on the day's turmoil, former Italian president
Francesco Cossiga said: "This is a total disaster. It couldn't
get worse than this."