Rome

Letta warns feuding parties not to forget meltdown danger

Premier says govt more solid than critics think

Letta warns feuding parties not to forget meltdown danger

(see related story on Bonino) Rome, August 9 - Premier Enrico Letta on Friday warned the feuding parties supporting his left-right government that the threat of Italy facing a financial meltdown has not been completely averted. Letta's already fragile government has been hit by rising tension between his centre-left Democratic Party (PD) and Silvio Berlusconi's People of Freedom (PdL) party after the supreme court upheld a tax-fraud conviction against the ex-premier last week. Many commentators see the coalition in danger of collapsing soon and Foreign Minister Emma Bonino admitted Friday that the challenge the government faced amid the turmoil was close to "impossible". Letta reminded the parties of the situation two years ago, when Berlusconi was forced to step down as premier at the height of the eurozone crisis to make way for Mario Monti's emergency technocrat administration. At the time the cost of servicing Italy's huge public debt soared, with the spread between the 10-year Italian bond and the German benchmark reaching over 500 basis points and the country looking in danger of a Greek-style meltdown. The spread, a key measure of investor confidence, dropped after Monti introduced a series of tax hikes and spending cuts to improve Italy's public finances before Letta's executive took power in April. The spread has remained steady since last week's verdict, a possible sign the money markets do not expect the government to collapse immediately. But Letta warned that this may not remain the case if the turbulence escalates further. "I hope the Italian political world does not forget the importance of interest rates and the spread," Letta told a press conference. "I have the impression that it was talked about a lot in 2011, but then, as often happens in Italy, it wasn't digested and it wasn't talked about any more. "Confidence has returned to the markets, as shown by the spread. This confidence should encourage us to press on, not to stop". Letta stressed, however, that he did not think the government was an unsteady as it might look. "You know that we are used to sailing on a ship in storms, waves and billows," he said. "The ship is proving to be more solid that our critics thought".

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