Shaky Italian Coalition Starts Crisis Negotiations on Budget

ROME -- Italian communist leader Fausto Bertinotti began crisis talks with Prime Minister Romano Prodi on Monday to try to rescue the 1998 budget, but gave little sign that he had softened his opposition to big welfare cuts.

Bertinotti brought with him to the talks a resounding "no" to the draft budget from a meeting of members of his Communist Refoundation party.

"It's clear that we are re-stating our 'no' to this budget. ... We have repeated ... that on this budget the government will not have a majority," Bertinotti said after the Refoundation meeting.

While Bertinotti poured cold water on speculation that a budget deal was within reach, financial markets remained cautiously positive that the deadlock would be broken.

Without the support of communist deputies in the lower house, the Chamber of Deputies, Prodi has next to no chance of passing the budget, seen as vital to Italy's hopes of joining the launch of a European single currency in 1999.

He is due to address a debate in the Chamber on Tuesday to report on the budget issue.

If both sides fail to stitch together an accord, Prodi may have to tell the chamber he no longer has a working majority. That may trigger a vote of confidence.

If Prodi lost, he would have to tender his resignation, bringing down his 17-month government, the first leftist administration in Italy since World War II.

Italian stocks pared early gains on mounting nervousness as the Prodi-Bertinotti meeting got under way.

The all-share Mibtel index fell 0.5 percent to 15,458, down from the day's high of 15,796.

The lira remained around 980 to the Deutsche mark in the afternoon, though it had firmed slightly to 979.80 before Bertinotti reiterated his party's outright opposition to the budget.

Bertinotti said on entering the talks that he would insist on concessions on reducing the working week to 35 hours from 40, helping create jobs in the poor south of Italy, and defending old age pensions.

The hard left wants a 35-hour week enshrined in law by the year 2000.

But in an interview in Monday's La Stampa newspaper, Labour Minister Tiziano Treu dismissed that idea as "Soviet economics" and said the government's aim was to move toward the 35-hour target with its European Union partners.

Refoundation fiercely opposes cuts in the budget that would scythe some 4 trillion lire ($2.8 billion) off welfare and pension spending.

In Milan, European Commissioner Mario Monti told a conference that Italy had to stick to pledges to contain welfare spending made in an economic convergence plan presented to the EU in July.