FACTBOX-Key political risks to watch in Italy

By James Mackenzie

ROME, Nov 1, (BestGrowthStock) – The standoff between the rival
camps of Prime Minister Silvio Berlusconi and his estranged
former ally Gianfranco Fini has eased for the moment,with both
sides maintaining a watchful truce.

But many commentators still expect a crisis in the coming
months to trigger elections early next year, two years before
they are due in 2013.

The two leading figures on the Italian centre right split in
July when Berlusconi effectively expelled Fini from the People
of Freedom party they created together in 2008.

Fini accuses the billionaire prime minister of running the
government like part of his business empire, while Berlusconi
accuses his former partner of treachery.

Fini, who has the support of more than 40 deputies and
senators, probably has the numbers to topple the prime minister
but he has said he will back the government as long as it sticks
to the programme. He voted in favour of Berlusconi in a
confidence motion in parliament last month.

The weak and divided centre-left opposition has so far posed
little threat and opinion polls suggest Berlusconi would be
likely to win an election although he would probably emerge
weaker, perhaps losing control of the Senate.

Here are some of the main factors to watch:

JUSTICE REFORM

One of the most sensitive problems facing the government is
justice reform, an issue which Fini has said could lead to an
ultimate breakdown and trigger early elections.

In December, Italy’s top court is due to rule on a law which
protects serving politicians from prosecution. If it rules the
law unconstitutional, Berlusconi could have to appear in court
in a corruption trial which, for the moment, has been suspended.

He denies accusations that he bribed British lawyer David
Mills to give false testimony to protect his businesses but the
case has been hanging over the government for months.

Justice Minister Angelino Alfano is preparing a separate
bill that would also protect Berlusconi from prosecution while
he is in office, a measure the prime minister says is needed to
shield him from what he calls politically motivated magistrates.

Fini’s camp say they have nothing against a law that would
allow the prime minister to concentrate on his job but they want
to limit the protection to a single term in office, which may
not be enough for Berlusconi.

What to watch for:

— The constitutional court decision expected on Dec. 14

— Whether the so-called “Alfano law” is approved in
parliament and in what form.

RUBBISH, RUBY, RATINGS

Berlusconi’s personal approval rating stands at 37 percent,
its lowest since he came to power in 2008, according to a recent
survey by pollsters IPR in the left-leaning La Repubblica daily.
A number of issues could contribute to cutting it further.

The chronic scandal over waste disposal in the southern city
of Naples flared up again last month and could hurt the
government if it remains unresolved for long.

Television pictures of angry demonstrators and mounds of
uncollected garbage on the streets have made a mockery of
Berlusconi’s claim to have solved the problem after the last
serious rubbish crisis in 2008.

Fresh allegations about the prime minister’s private life
may also have the potential to damage his standing with
conservative voters if they create a drawn-out scandal.

He has dismissed as “trash” media reports of a teenage girl
named Ruby attending parties at his villa near Milan but papers
have seized on the story, splashing it across their front pages.

Last year, Berlusconi’s second wife Veronica sought a
divorce after he was filmed attending the 18th birthday party of
an aspiring model. The uproar over that was widely seen as
contributing to a fall in his approval ratings.

What to watch for:

— Rubbish protests turning violent

— Opinion poll readings showing an impact from the garbage
crisis or allegations about Berlusconi’s personal life

MARKETS AND THE ECONOMY

Shortly before the summer break, the government passed a 25
billion euros ($31.60 billion) austerity package intended to cut
Italy’s public deficit to below the European Union’s ceiling of
3 percent of gross domestic product.

Analysts welcomed the cuts, saying they will probably allow
Italy to meet its deficit goals. Italy has not suffered the
market turmoil seen in Greece or Spain. [ID:nLDE64P055]

Standard & Poor’s has an A+ sovereign rating on Italy,
Moody’s has Aa2 and Fitch has AA-. In each case, the outlook is
stable. The agencies have praised the fact the deficit has risen
less than in most of Italy’s euro zone peers, but say that low
growth limits its ability to cut its huge public debt.

The government has lifted its debt forecast to 118.5 percent
of GDP in 2010 and 119.2 percent in 2011, among the highest in
the euro zone. [ID:nLDE68S0NN].

The impact of new EU budget rules that would focus more
closely on debt as well as deficit may also affect Italy. The
proposals are under discussion and their impact is still unclear
but tighter rules could put the government under pressure.

The wider economy is still recovering from its worst
post-war recession last year and joblessness, especially among
young people, remains high. The government expects growth of no
more than 1.2 percent this year and 1.3 percent in 2011.
The chronic problem of competitiveness in the economy has
been underlined by comments from Sergio Marchionne, the head of
Italy’s industrial icon Fiat who said last month that the
company would perform better without its home country.

Marchionne is engaged in a drive to boost productivity at
Fiat’s loss-making Italian plants and has won the support of
some unions but faces stiff opposition from hardline sections of
the labour movement.

What to watch:

— More market jitters over debt problems in the euro zone.

— Any sign rating agencies are unhappy with the pace of
debt-cutting, or that they may cut their outlooks for Italy.

For political risks to watch in other countries, please
click on [ID:nEMEARISK]
(Editing by Ralph Boulton)

FACTBOX-Key political risks to watch in Italy