It has set back relations between the European Union and Slovenia, which is keen to join the EU, and appears to have grown sharper since the emergence of Silvio Berlusconi's right-wing government in Rome.
The row centres on property that Yugoslavia's then-ruling Communists confiscated from ethnic Italians after the Second World War, when the Istrian peninsula was transferred from Italy to Yugoslavia. The Berlusconi government wants Slovenia to hand back state-owned property and to let Italians buy back property that is now in private Slovenian ownership. Tens of thousands of ethnic Italians left Istria after the Second World War, and more than 300 formerly Italian- owned buildings are now Slovenian state property.
Slovenia's failure to meet Italy's demands has caused Rome to block negotiations between the EU and Slovenia aimed at giving the former Yugoslav republic associate EU membership. Slovenia's Prime Minister, Janez Drnovsek, denounced Italy's methods on Monday as 'extortion' and the bullying of a country of 2 million people by one of 58 million.
Slovenia says it is willing to amend its legislation so that foreigners can acquire property, but rejects the view that this change should be a condition of associate EU membership. The Slovenes point out that no such conditions were imposed on other countries that have gained associate membership - such as Poland, Hungary and the Czech Republic.
Mr Berlusconi and Mr Drnovsek met in Trieste last Saturday to discuss the dispute, but little was decided beyond an agreement to meet again in September. The atmosphere at a news conference in Trieste turned sour when a Slovenian reporter asked Livio Caputo, undersecretary in Italy's Foreign Ministry, how Italy would compensate Slovenia for damages incurred during Mussolini's inter-war fascist rule. Mr Caputo replied that Italy was willing to pay for damages caused when the Slovene National Hall in Trieste was burned down in 1920. The Slovenes were not amused, since Trieste, though it has a Slovenian minority, is part of Italy. The dispute has been confined to property issues, but the presence of neo-Fascists in Mr Berlusconi's government has revived memories of the time when Italy and Yugoslavia had a disputed border in Istria.
The neo-Fascists have questioned the right of Slovenia and Croatia to inherit the Istrian peninsula and Dalmatian coast and have alleged that Italian minorities in these areas need more protection. Representatives of Slovenia's Italian minority told Mr Drnovsek last week that they were concerned that Yugoslavia's collapse had weakened the position of Istrian Italians by splitting them into two communities in Slovenia and Croatia.
Italians in the Istria region have have always had a strong sense of local identity. This was established and fostered by a long period of rule by Venice that lasted until 1797.
(Map omitted)Reuse content