Ailing Berlusconi forced to fire top ally to save his government

Silvio Berlusconi suffered a big setback on Friday night when he was forced to sack his Finance Minister, Giulio Tremonti, to keep his government afloat.

The resignation was a blow to the Italian Prime Minister's personal esteem and the first concrete sign, following a disastrous showing in recent European and regional elections, that his star is on the wane. At the climax of a long and stormy meeting of the ruling centre-right coalition, the Deputy Prime Minister, Gianfranco Fini, threatened to bring down the government if Mr Tremonti did not resign. The media mogul and Prime Minister blinked first.

Mr Berlusconi "has cut off Giulio Tremonti's head to save his own skin", crowed L'Unita, a left-wing daily.

It is the end of a double act that Mr Berlusconi has twice succeeded in selling to the electorate as a recipe for a new economic miracle. Itdelivered dazzling financial and fiscal footwork but nothing to keep the wolf from the door.

Mr Tremonti leaves office after three years with the economy flat for 2002 and 2003 and still in trouble, and with Italy last in the Group of Seven industrialised nations for economic growth. The universal tax cuts promised by Mr Berlusconi, which were designed to usher in the New Jerusalem, remain undelivered. Tomorrow, Italy is expected to get a wigging from EU finance ministers for not doing enough to control its budget deficit.

Where did it all go wrong? Mr Tremonti was the embodiment of the notion, successfully peddled by Mr Berlusconi at elections in 1994 and 2001, that what he had achieved for himself, as Italy's richest man, he would now do for Italy at large.

As with the many other old buddies by whom Mr Berlusconi is surrounded, Mr Tremonti's loyalty was overwhelmingly to the Prime Minister. Allies in the ruling coalition were frequently infuriated to have important economic policy shifts sprung on them without warning or consultation.

"Tremonti would decide," said the Agriculture Minister, Gianni Alemanno, of the post-Fascist National Alliance, "and we had to accept it as a fait accompli, without being able to participate in the definition of choices of economic policy."

Mr Tremonti's downfall is the first sign, in the aftermath of elections last month in which Mr Berlusconi's Forza Italia party slumped by 8 per cent from its showing in the 2001 election, that the Prime Minister himself may be on his way out.

The defeat of his candidate for the province of Milan in a run-off election last weekend brought home the depth of his fall from favour. Milan is his home town, where he made his first fortune, where he owns his football club, AC Milan. His candidate, the incumbent, was soundly beaten by a former hard-line Communist.

The former prime minister Romano Prodi, who returns in October from his stint as President of the European Commission to lead the centre-left Olive Tree coalition, said: "How can the victory in Milan not be read as a political sign for the whole country?"

The leader of one of the smaller parties that did well in the elections, the Union of Christian Democrats, which is part of the ruling coalition, said: "The [Berlusconi] monarchy is over."

Mr Tremonti was a quasi-Thatcherite figure, the cold and brilliant "wind from the north" as he was known, scourge of the lax and lazy south. "He personified the desire for modernisation and the intolerance of Roman bureaucracy," said Umberto la Rocca in La Stampa. Like Margaret Thatcher, he believed in balanced books - never before an Italian speciality - and performed financial acrobatics to keep Italy within the prescribed 5 per cent budget deficit limit.

But he was also supposed to make the country rich. "That type of politics was sunk by 11 September 2001," Mr La Rocca claimed. "It was a crisis that economic liberalism was unable to check, and that no 'invisible hand' was able to control."

With the end of the Italian Dream, Tremonti had to go. Now Italians are waiting to see how long it takes for his master to follow.