Berlusconi stares disaster in face as economy falters

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Silvio Berlusconi, under attack from all sides, chaired his first cabinet meeting yesterday after a month out of the public eye as he geared up for the toughest challenges of his career.

On 24 January his political party, Forza Italia, marks its 10th anniversary with a lavish party. The face-lift Mr Berlusconi has reportedly had while on holiday at his villa in Sardinia and the diet he has supposedly started may help him to appear brave for the event. But doubts remain about the plastic surgery. No pictures of the remodelled Prime Minister have been published. One of his ministers, Giulio Urbani, said while leaving yesterday's cabinet meeting: "I saw no trace of a face-lift." The Prime Minister's office has refused to comment.

However his looks may have been transformed - "tall and blond," suggested one insider - it will take more than a nip and a tuck for Mr Berlusconi to get through the next six months unscathed. After more than two and a half years in office, the tirelessly upbeat media billionaire is staring disaster in the face.

Economically, Italy is in deep trouble with mounting inflation, stagnant growth and a record national debt, the opposite effect his supporters intended when they voted the business tycoon into office with a landslide election victory in 2002. Transport workers, seeing their standard of living plummet, have staged a series of wildcat strikes, bringing Milan in particular to a standstill.

Mr Berlusconi was elected with a mandate for reform, but his boldest initiatives have all been interpreted as looking after number one: either by helping him to escape conviction for criminal offences or to increase the wealth of his companies.

A Bill meant to enable cases to be shifted to another judiciary if the original bench was biased was signed into law, but the Supreme Court refused to allow Mr Berlusconi's case to be moved. A media-reform Bill, which would have allowed his companies to keep all three of their television networks and increase their stake in the newspaper market, was sent back by President Carlo Ciampi. And on Tuesday the Constitutional Court rejected the immunity Bill designed to protect Mr Berlusconi from prosecution as long as he remains in office, obliging the Prime Minister to stand trial once again on a charge of having bribed judges in the 1980s.

These matters are widely seen abroad as a sign that Italy's system of checks and balances remains in good repair. But Mr Berlusconi views them as further proof that the Communists, who he claimed dominate the judiciary and the parts of the media beyond his control, are still outrageously powerful and determined to humble him.

Mr Berlusconi is also faced with escalating discord within his centre-right coalition, with his two main partners, the post-Fascist Alleanza Nazionale and the populist Lega Nord, demanding a government shuffle to give them more power.

Umberto Bossi, who heads the Lega Nord, has repeatedly threatened to bring the government down, as he did in 1994, if his cherished federalist plan to give more power to the wealthy north is not enacted by the end of this month. His enemies within the government said he is merely "baying at the moon", but acknowledge that Mr Berlusconi must give him something.

The Parmalat scandal has caused another headache for the Prime Minister, threatening a budget haemorrhage and requiring a substantial reform of the way corporations are policed if Italy is not to suffer a disastrous exodus of foreign investors.

But the Parmalat crisis has also brought the government an unexpected boon. Giulio Tremonti, Mr Berlusconi's Finance Minister, is demanding tough new controls over the Bank of Italy, which the government blames for not stopping the Parmalat rot several months ago.

The Bank of Italy indirectly keeps all Italy's political parties, except Forza Italia and the Lega Nord, afloat with generous credit. If Mr Tremonti gets a grip on the Bank, he could turn off that tap, threatening Mr Berlusconi's political adversaries with bankruptcy; a billionaire in politics remains a potent force. Despite Mr Berlusconi's problems, the possibility of an early election is not one the opposition relishes.