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Europe: Italy's Political Crisis Has EU Ramifications

Prague, 13 October 1997 (RFE/RL) -- Italy's political crisis is set to reach a decisive stage today, as state President Oscar Luigi Scalfaro holds consultations with the key party leaders on the shape of a new government.

At stake is not just formation of another administration in Rome -- the latest in an interminable series of governments the country has had since World War II. More importantly, what happens today can decide whether Italy will meet the criteria to join the European Union's single currency by January 1999. As such, the drama being enacted in Rome has wider, European dimensions.

The crisis started on Thursday when Prime Minister Romano Prodi handed-in the resignation of his centre-left government because a small coalition partner, the Communist Refoundation Party, refused to support his 1998 draft budget. Refoundation rejects cuts of almost $3 billion in welfare and pensions as foreseen in the budget. Prodi says those cuts are essential if Italy is to limit its budget deficit to meet the EU's strict terms for joining monetary union.

In his consultations, Scalfaro is facing three major scenarios. One is that Prodi and the communist hard-liners can settle their differences and agree to recreate their ruling coalition. Talks last night between the former partners appear to have gone well, with a spokesman saying there is a positive will to rebuild a majority led by Prodi. The shape of the inevitable compromise involved is not yet clear, but Prodi says the welfare and pension cuts cannot be dropped. Although big, these cuts do not represent a dismantling of Italy's post-war welfare state, they are meant mainly to slash waste and inefficiency from the system.

Another major possibility facing Scalfaro is that Prodi and his remaining allies will decide to dump the Refoundation hard-liners and join forces instead with the centre-right opposition in a grand coalition. This grand coalition would pass the budget and prepare Italy for the single currency.

The main opposition bloc is the Freedom Alliance led by Silvio Berlusconi, who favours the concept of a broad-based coalition. Prodi is reported not keen on the idea, but is likely to be using it as a threat today to exact concessions from Refoundation, which is led by Fausto Bertinotti.

If such a grand coalition were to come into existence, there arises the question of who would lead it. Analysts see two possibilities. One is Finance Minister Carlo Azeglio Ciampi, a former central banker who supports Italy's aspirations to be in the first wave of monetary union. The other is the economist Mario Monti, who has built a reputation as a strong and clear-sighted technocrat through his handling of taxation policy for the European Union.

The third scenario facing President Scalfaro is to call early elections -- a course which would involve such delays in the political process that it would almost certainly spell the end of Italy's hopes for early membership of monetary union.

Notable amid the political manoeuvering is the anger directed at the politicians by a broad section of the Italian people, who consider their country's reputation as a reliable EU partner at stake.

The Communist Refoundation party won some eight percent of the vote in last year's elections, and opinion polls show about the same proportion of the electorate supports their line against the budget now. But surveys tend to show a much broader spectrum of the population is prepared to accept the sacrifices proposed by Prodi, viewing them as necessary to keep Italy firmly in the mainstream of EU developments.

Italy is often an object of amusement over its post-war tradition of revolving-door governments -- the next one will be government number 56 in the last 52 years -- but the country has always been a steady and consistent member of the EU. It has never indulged in the periodic fits of national self-interest which have characterised for instance British or French membership of the EU over the years.