Berlusconi told to fix Italy finances at EU summit

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Prime Minister Silvio Berlusconi came under heavy pressure on Sunday from EU leaders to rein in Italy's runaway debt and resolve a row with France over a seat on the European Central Bank.

Berlusconi held face-to-face talks with EU president Herman Van Rompuy before going into a meeting with German Chancellor Angela Merkel and French President Nicolas Sarkozy just ahead of an EU summit.

The charismatic media mogul quipped that he "never flunked (an exam) in my life" as he emerged from the talks with Europe's power couple.

But diplomats said Berlusconi lacks credibility in the eyes of his European Union partners, who are telling him to follow the example of Spain, which is biting the bullet with tough austerity measures.

"I think it is very important that this is done in Italy with the support of the Italian people," said Swedish Prime Minister Fredrik Reinfeldt, a non-euro EU state recognised as a leading example of good fiscal housekeeping.

"You have a lot to gain if you just start doing the right structural things," Reinfeldt said, referring to economic reforms Italy's partners want enacted hand-in-hand with budget cuts.

With fears rising that Italy could be sucked into a crisis that has already claimed Greece, Ireland and Portugal, a diplomat said that "the idea is to pressure Berlusconi."

Budget cuts adopted by the Italian parliament in July and September aim to bring the country back into balance from 2013 and reduce its colossal 1.9 trillion euro debt, equal to 120 percent of its gross domestic product -- way above the EU's 60 percent limit.

The European Commission last week pressed Italy to move on cuts in public spending and structural reforms "as a matter of urgency."

European officials believe Italy has slipped back on its commitments since August, when the European Central Bank (ECB) moved to support Rome by buying up its debt on the financial markets.

The irritation is all the greater given that Europe is battling to protect Italy and Spain, its third and fourth largest economies, against contagion from the debt crisis.

Berlusconi tried to convince his peers at a dinner of EU conservative leaders on Saturday, which Merkel also attended.

When asked whether he thought he had convinced Merkel of his determination to announce new cuts and reforms, Berlusconi said: "I think so."

Berlusconi outlined the austerity plan adopted by the Italian parliament during the dinner but he appeared "very reluctant" on the need to do more, according to source who attended the gathering.

Italian business leaders are worried.

The director general of the Confindustria employers' federation, Giampaolo Galli, warned earlier this month that a "tsunami alarm" on a credit crunch had sounded.

Research by the Bank of Italy and business daily Il Sole 24 Ore has shown that nearly three in 10 employers had difficulties in obtaining credit last month -- twice as many as in June.

As the EU summit began, Berlusconi also sought to defuse a row with France over Rome's over-representation, at the expense of France, on the ECB board.

France will be left without a seat on the powerful six-member executive board with the departure of ECB chief and Frenchman Jean-Claude Trichet in November, when Italian central bank governor Mario Draghi takes over.

The other Italian on the board, Lorenzo Bini Smaghi, has refused to make way for France after Berlusconi did not name him to head Italy's central bank.

Berlusconi said he ordered Bini Smaghi to resign "for the good of the country" and that he would speak to Sarkozy about the issue -- but the Italian leader has no power to force Bini Smaghi out.

© 2011 AFP

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