Italian cabinet threatens to quit in graft row

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ROME (Reuter) - The Prime Minister, Silvio Berlusconi, took on Italy's popular magistrates, his own coalition partners and public opinion yesterday in a battle of wills over a measure to curtail powers of arrest in graft cases.

In a defiant speech to a stormy news conference, the media tycoon who was elected on a wave of disgust at corruption in politics declared his full support for a cabinet decree that could open the cell doors for some 2,000 suspects.

With Milan's elite pool of 'Clean Hands' magistrates announcing they would leave their posts in protest, he said the aim of the law was to stop Italy becoming a police state.

Speaking later in Brussels, where he attended a European Union summit, Mr Berlusconi told reporters: 'The decree was approved unanimously. I don't see any need to change it.' The cabinet spokesman, Giuliano Ferrara, raised the stakes by declaring that the government would resign if the decree was rejected by parliament, where Mr Berlusconi's two main coalition partners have pledged to have it amended.

'If the government is slapped on the face on this act of courage, and if it fails to obtain the support of the majority, it's clear that the government will pack its bags,' Mr Ferrara told the Berlusconi- owned Rete Quattro television network.

The decree prohibits magistrates from applying preventive detention in jail in cases of bribery and corruption - a law that has been liberally applied in the two- year judicial assault on Italy's Tangentopoli (Bribesville) scandal.

The storm over its passage presented Mr Berlusconi with the first real test of his two-month-old coalition and sent the lira, bonds and shares skidding on market fears of a full-blown government crisis.

The Prime Minister's brother, Paolo, was briefly jailed last March in a graft case and examining magistrates are considering a request to arrest his cabinet secretary, Gianni Letta, who moved into government with him from his Fininvest business empire.

Declaring imprisonment had become almost the rule, Mr Berlusconi said the aim of the decree was to restore civil liberties. Italy 'has got to be stopped from becoming a police state', he said. He acknowledged the service magistrates had performed in bringing down a corrupt old guard - and thus helping his own election - but said the time had come to look forward. He accused judges of acting like publicity-seeking stars.

In Milan, some 2,000 people incensed by the decree gathered in protest outside the Palace of Justice, and similar demonstrations took place in Florence, Genoa and Naples.