Warning to Berlusconi from key ally

Silvio Berlusconi's key political ally yesterday issued an ultimatum to the embattled Italian prime minister, saying he must lower taxes, decentralize government and end the country's participation in the Libyan war if he wants to remain in power.

However, Northern League leader Umberto Bossi said early elections would be an unwise gift to the opposition - indicating that for now, at least, Mr Berlusconi could count on his support.

Mr Bossi listed his demands at the League's annual rally in the party's power base near Bergamo. The speech was eagerly anticipated since Mr Berlusconi's political survival has been put in question following two recent electoral drubbings.

The premier, whose popularity has shrunk amid an underage sex scandal and Italy's stagnant economy, needs the League's support to stay in power until his five-year term ends in 2013.

Mr Bossi said Mr Berlusconi's government could last its term and warned that early elections would only favour the opposition. But he said Mr Berlusconi must respond to the League's demands, including moving at least two ministries out of Rome to the north.

"It's not a given that we will go with Berlusconi in the next elections," Mr Bossi told his audience. "It will depend on the choices that are made. The leadership of Berlusconi can finish in the next election if, logically, they attentively listen to the proposals that we give him."

The League has long complained that the government wastes much of the affluent north's tax revenues on the underdeveloped south and on Italy's centralized bureaucracy. Mr Bossi has for years called for a federal system for Italy's regions, and now wants at least the industry ministry moved to the Lombardy region which is home to Italy's business capital Milan.

Mr Bossi also demanded tax cuts, revisions in decrees so that mayors have more money at their discretion to spend on security, and an end to Italy's participation in Libya's civil war so the money could be diverted to offset tax cuts. The League, which is heavily anti-immigrant, has been vehemently opposed to the war because of fears it would unleash waves of refugees on Italy's shores.

Mr Berlusconi has long been reliant on Mr Bossi's support, which has become critical following the prime minister's split from another ally last year. But both the Northern League and Mr Berlusconi's party saw their candidates lose out in local elections last month, and the prime minister was dealt a stinging political blow last week when Italians voted in referendums to block some of his key projects to allow nuclear energy and privatize the water supply.

The credit ratings agency Moody's, meanwhile, warned last week that it may cut Italy's credit rating because of concerns about the country's debt, one of the highest in Europe.Mr Berlusconi's finance minister, Giulio Tremonti, has been resisting tax breaks since Italy already slashed spending and cannot afford to lose revenue. But Mr Bossi insisted on tax cuts, particularly for the small-to-medium sized businesses of the north that form his core constituents.