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Thursday, September 21, 2006

More Problems For the Prodi Coalition

Following hot on the heels of the opionions expressed by George Kopits(see my last post on Italaian Economy Watch)to the effect that:

The new Italian government is composed of a loose coalition of divergent political parties holding only a razor-thin majority. Any initiative to reduce the budget gap through spending cuts (as the government is rightly committed not to raise taxes but even to trim payroll taxes) requires painstaking consultations and negotiations with individual coalition partners.

today's news that the Italian senator Sergio De Gregorio has left the Prodi coalition can hardly be considered welcome, especially with the vote on the 2007 budget looming:

Political power on Tuesday seeped away from Romano Prodi, Italy's centre-left prime minister, after a senator defected from his ruling coalition, leaving its majority in parliament's upper house hanging by a thread.

The effect of Sergio De Gregorio's departure became instantly clear on Tuesday, when Mr Prodi's coalition lost a full vote on the Senate floor for the first time since it won a narrow general election victory in April.

With the two houses co-equal in powers, the defection means that the government will devote all its efforts to passing the 2007 budget, which is already under attack from the coalition's leftwing elements.

This adds to the pressure on Mr Prodi whose government is already in turmoil over a controversy involving Telecom Italia, the country's biggest telecommunications company, which has exposed the prime minister to criticism from his coalition's two main political parties.

The government will face more difficulties next week when it puts the final touches to the 2007 budget, which contains €15bn (£10bn, $19bn) of deficit-cutting measures that leftwingers in the coalition want to water down.

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