`Lame duck' Dini fights to stay afloat

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The credibility of Italy's Prime Minister, Lamberto Dini, took a battering yesterday as the lira plummeted to record lows against the mark and the government's four-point programme of political and economic reforms appeared increasingly compromised by power struggles.

Less than a month after his emergency government of technocrats was sworn in, Mr Dini appeared to be losing the confidence of the investors and currency traders who had hoped his appointment would bring a temporary respite to Italy's bitter political infighting.

"He hasn't got the political means to work seriously. He is being forced to rush through measures and cannot address fundamental reforms," one banker with a large investment house in Rome said.

The Bank of Italy intervened yesterday for the third time in four days to prop up the lira, which at one stage was trading at 1,100 to the mark before recovering slightly. The rate was closer to 1,060 towards the end of last week.

Although some of the dramatic drop was a knock-on from the weakness of the dollar, investment experts said it had been exacerbated by the perception that Mr Dini was being buffeted by the political demands of his predecessor, Silvio Berlusconi, who is pushing hard to hold new parliamentary elections as early as June.

"With the possible exception of pension reform - progress in this area is far from certain - the Dini government is essentially pre-electoral," a report prepared for the merchant bankers, Merrill Lynch, said. "It will do little to provide answers to important longer-term questions."

Mr Dini's office vigorously denied the Prime Minister was turning into a lame duck, and said the picture would look very different in a few days with the unveiling of an emergency mini-budget to plug a 20-trillion lire hole in the public finances. "This pessimism is artificial and exaggerated," Mr Dini's spokesman, Mauro Masi, said.

"The fall in the lira does not reflect in any way the real economy which is growing steadily. Our trade balance is positive and also growing."

But the economy is not the only area in which Mr Dini is having problems. Legislation proposed at the end of last week to regulate access to the media during election campaigns has been decried across the political spectrum as either too repressive or unworkable.

Meanwhile, an electoral law for forthcoming regional elections, passed on Monday, only slightly modified the old proportional system responsible for part of Italy's structural instability. "This law looks like a step backwards," the investment banker said. "It's not the kind of system to inspire international confidence in Italy."

Mr Dini's authority is being further undermined by repeated threats and attacks from Mr Berlusconi's right-wing Freedom Alliance - the political family to which he nominally belongs, but which has proved his thorniest adversary.

The beginning of the crisis in the lira coincided with newspaper reports that Mr Berlusconi would make his support for the mini-budget conditional on a firm commitment to a June parliamentary election. Mr Berlusconi denied that he had held the government to ransom, but the damage was done.

Yesterday a former minister under Mr Berlusconi, Publio Fiori, denounced Mr Dini's administration as a failure and said it was time - even beforeelections - for a new government, made up of politicians rather than technocrats.

Although rather a hollow warning - it is highly unlikely the centre-right could assemble the necessary majority to form a government - it was an uncomfortable reminder that Mr Dini has limited room for manoeuvre and could fall any time.