Berlusconi faces crisis as lira falls

STORM clouds gathered over the government of Silvio Berlusconi yesterday, as a crisis of confidence on the financial markets sent the lira crashing out of control and members of the coalition hurled bitter accusations at one another.

Mr Berlusconi's problems were compounded by comments from the Labour Minister, Clemente Mastella, a member of the Christian Democratic Centre (CCD). He blamed the lira's problems on the machinations of supposed Jewish lobbies in New York; he accused them of conspiring against the government. Mr Mastella later issued a half-hearted retraction but the damage to the government's credibility had been done.

By the afternoon the currency had plunged to a record low of less than below 1,030 lira to the German mark, as investors became unsettled by the unstable political situation brought about by Mr Berlusconi's ham-fisted leadership. Financial speculators were blamed for the lira's collapse. That did not disguise the fact that Mr Berlusconi's political misjudgements have shaken the markets' confidence.

After just 100 days in office, Mr Berlusconi's coalition is riven with disputes. There are constant public feuds between the Prime Minister's Forza Italia, the Northern League and Gianfranco Fini's neo- Fascist National Alliance.

The billionaire Prime Minister responded to the crisis by going on television, with the aim of addressing the nation and inspiring confidence in his leadership. In televised interviews Mr Berlusconi called for calm.

''Be calm - the reality is that it is not raining. Italy has never had it so good,' he said on a main news programme. About 200,000 new jobs had been created, production was growing and inflation was at an all-time low, he said. 'Here is an economy which works, that is the reality,' he added.

Mr Berlusconi's televised appearances have worked well in the past. But over-reliance on media exposure is starting to show diminishing returns. His approval rating has plunged in the opinion polls to about 53 per cent. His main problem is his ownership of Fininvest - Europe's second largest media conglomerate. In two interviews published yesterday he admitted Fininvest had bribed tax officials. The admission could reopen the controversy over his private interests. More embarrassment followed when the Health Minister, Raffaele Costa, appealed to Mr Berlusconi to reassure people about the economy. Another minister blamed the lira's problems on the opposition. 'The opposition . . . are even allying themselves with those who want to hit out at national interests,' said Publio Fiori, a member of the National Alliance.

The 'systematic denigration' of the government had encouraged speculation against the lira, he said, echoing the anti-Semitic remarks of Mr Mastella. 'The presence of the National Alliance in the government worries New York's Jewish lobby,' Mr Mastella was quoted as saying in several newspapers yesterday. 'We should explain to Jewish high finance that Gianfranco Fini is increasingly distant from a nostalgic right.'

Interest rate fears, page 12

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