June 1, 2011 / 8:49 AM / in 8 years

Berlusconi backs minister amid new signs of rift

ROME (Reuters) - Italian Prime Minister Silvio Berlusconi was forced to issue a statement backing Economy Minister Giulio Tremonti for the third time in just over a month, following fresh talk of a rift.

Italian Prime Minister Silvio Berlusconi walks as he waits for Gabon President Ali Bongo Ondimba at Chigi palace in downtown Rome May 17, 2011. REUTERS/Alessandro Bianchi

In a statement late on Tuesday, a day after a crushing local election defeat for the centre-right, Berlusconi said: “I reconfirm full confidence in Minister Tremonti and I am sure we will continue to work well together as we have up to now.”

He made the statement after Italian news agencies quoted him as declaring that he would push on with a tax reform and saying of his economy minister “It’s not Tremonti who decides, he proposes.”

The comments were widely taken as a fresh sign of tension between Berlusconi and Tremonti, often seen as a potential successor to the 74 year-old prime minister.

Italian media, including the Berlusconi-friendly Libero daily, reported rumours that Tremonti had threatened to resign over the comments, which reopened longstanding speculation of a breakdown in relations between the two.

Berlusconi has already been forced to issue two similar statements in recent weeks about Tremonti, who is generally credited with steering Italy through the financial crisis in relative safety.

The latest signs of tension came after an election loss this week that has raised doubts over the long-term stability of Berlusconi’s centre-right government and its ability to carry out fresh reforms of the stagnant Italian economy.

Last month, ratings agency Standard and Poor’s cut its outlook on Italy to “negative” from “stable,” citing potential political gridlock as a hindrance to cutting a public debt level that stands at almost 120 percent of gross domestic product.

Politicians on all sides have been acutely aware of the need to contain the debt to ward off financial market turbulence and Tremonti’s tight grip on public spending has been seen as key to containing Italy’s relatively modest deficit.

But many in Berlusconi’s party have been irritated by his dominance of spending decisions in cabinet and his closeness to the prime minister’s often unruly coalition allies in the Northern League.

The daily La Repubblica reported on Wednesday that Tremonti was preparing plans for a tax reform that would cut the two lower bands of income tax rates by one or two percentage points and lift VAT rates for non-basic goods by one or two points.

The plan appears less ambitious than many have urged but Tremonti believes it is the most a heavily indebted country like Italy can afford, the newspaper wrote.

Editing by Jon Boyle

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